SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of September 2007
PETROCHINA COMPANY LIMITED
16 ANDELU, DONGCHENG DISTRICT
BEIJING, THE PEOPLE'S REPUBLIC OF CHINA, 100011
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
--- ---
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No X
--- ---
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-_____)
PetroChina Company Limited (the "Registrant") is furnishing under the cover
of Form 6-K the Registrant's 2007 interim report.
This report contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
are, by their nature, subject to significant risks and uncertainties. These
forward-looking statements include, without limitation, statements relating to:
-- the Registrant's plan to increase exploration efforts, optimize the
structure of its refining operations, construct new pipelines, and
develop newer and larger operations internationally; and
-- the Registrant's other future plans and prospects.
These forward-looking statements reflect our current views with respect to
future events and are not a guarantee of future performance. Actual results may
differ materially from information contained in these forward-looking statements
as a result of a number of factors, including, without limitation:
- fluctuations in crude oil and natural gas prices;
- failure to achieve continued exploration success;
- failure or delay in achieving production from development projects;
- failure to complete the proposed acquisition of certain overseas
assets as planned;
- change in demand for competing fuels in the target market;
- continued availability of capital and financing;
- general economic, market and business conditions;
- changes in policies, laws or regulations of the PRC and other
jurisdictions in which the Registrant and its subsidiaries conduct
business; and
- other factors beyond the Registrant's control.
We do not intend to update or otherwise revise the forward-looking
statements in this report, whether as a result of new information, future events
or otherwise. Because of these risks, uncertainties and assumptions, the
forward-looking events and circumstances discussed in this report might not
occur in the way we expect, or at all.
You should not place undue reliance on any of these forward-looking
statements.
FINANCIAL AND BUSINESS SUMMARY
0.1%
Output of crude oil for the first half of 2007 was 419.7 million barrels,
representing an increase of 0.1% from the first half of 2006.
16.5%
Output of marketable natural gas for the first half of 2007 was 798.0 billion
cubic feet, representing an increase of 16.5% from the first half of 2006.
3.7%
Total output of crude oil and natural gas for the first half of 2007 was 552.7
million barrels of oil equivalent, representing an increase of 3.7% from the
first half of 2006.
20.3%
Consolidated turnover for the first half of 2007 was RMB392,726 million,
representing an increase of 20.3% from the first half of 2006.
1.4%
Consolidated net profit* for the first half of 2007 was RMB81,830 million,
representing an increase of 1.4% from the first half of 2006.
RMB0.01
Basic and diluted earnings per share attributable to equity holders of the
Company for the first half of 2007 were RMB0.46, representing an increase of
RMB0.01 from the first half of 2006.
RMB0.205690
The Board of Directors has proposed an interim dividend attributable to equity
holders of the Company for the first half of 2007 of RMB0.205690 per share.
* Note: Consolidated net profit is profit attributable to the Company's
equity holders.
CONTENTS
01. Consolidated Interim Condensed Financial Statements
42. Management's Discussion and Analysis of Financial Position and Results of
Operations
59. Business Operating Review and Prospects
62. Interim Dividends and Closure of Register of Members
62. Share Capital Structure
63. Repurchase, Sale or Redemption of Securities
63. Qualified Accountant
63. Other Disclosures
64. Shareholdings of Major Shareholders
66. Interests of Directors and Supervisors in the Share Capital of the Company
66. Compliance with the Model Code for Securities Transactions by Directors of
Listed Issuers
66. Compliance with the Code on Corporate Governance Practices
67. Audit Committee
67. Directors of the Company
PETROCHINA COMPANY LIMITED
UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the six months ended June 30, 2007 and June 30, 2006
(Amounts in millions except for per share data)
SIX MONTHS ENDED JUNE 30
---------------------------------
NOTES 2007 2006
----- ------------- -----------------
RMB RMB
TURNOVER 4 392,726 326,545
-------- --------
OPERATING EXPENSES
Purchases, services and other (166,995) (112,758)
Employee compensation costs (22,426) (16,993)
Exploration expenses, including exploratory dry holes (10,607) (8,750)
Depreciation, depletion and amortisation (31,228) (29,910)
Selling, general and administrative expenses (23,901) (19,104)
Taxes other than income taxes 5 (28,784) (24,259)
Other income, net 345 522
-------- --------
TOTAL OPERATING EXPENSES (283,596) (211,252)
-------- --------
PROFIT FROM OPERATIONS 109,130 115,293
-------- --------
FINANCE COSTS
Exchange gain 581 830
Exchange loss (923) (798)
Interest income 819 959
Interest expense (2,050) (1,848)
-------- --------
TOTAL NET FINANCE COSTS (1,573) (857)
-------- --------
SHARE OF PROFIT OF ASSOCIATES AND JOINTLY CONTROLLED
ENTITIES 2,785 1,482
-------- --------
PROFIT BEFORE TAXATION 6 110,342 115,918
TAXATION 7 (24,026) (30,675)
-------- --------
PROFIT FOR THE PERIOD 86,316 85,243
======== ========
ATTRIBUTABLE TO:
Equity holders of the Company 81,830 80,681
Minority interest 4,486 4,562
-------- --------
86,316 85,243
======== ========
BASIC AND DILUTED EARNINGS PER SHARE FOR PROFIT
ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY DURING
THE PERIOD 8 0.46 0.45
======== ========
DIVIDENDS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY:
Interim dividends proposed after the balance sheet date 9 36,823 36,307
======== ========
The accompanying notes are an integral part of these financial statements.
1
PETROCHINA COMPANY LIMITED
UNAUDITED CONSOLIDATED BALANCE SHEET
As of June 30, 2007 and December 31, 2006
(Amounts in millions)
NOTES JUNE 30, 2007 DECEMBER 31, 2006
----- ------------- -----------------
RMB RMB
NON CURRENT ASSETS
Property, plant and equipment 10 657,041 645,337
Investments in associates and jointly controlled
entities 32,447 32,956
Available-for-sale investments 2,508 2,054
Advance operating lease payments 21,195 20,468
Intangible and other assets 6,705 6,627
Time deposits with maturities over one year 2,013 2,499
------- -------
721,909 709,941
------- -------
CURRENT ASSETS
Inventories 11 84,327 76,038
Accounts receivable 12 16,399 8,488
Prepaid expenses and other current assets 39,618 23,281
Notes receivable 13 4,606 2,844
Time deposits with maturities over three months but
within one year 3,407 3,012
Cash and cash equivalents 71,771 48,559
------- -------
TOTAL CURRENT ASSETS 220,128 162,222
------- -------
CURRENT LIABILITIES
Accounts payable and accrued liabilities 14 136,581 120,182
Income tax payable 10,345 17,744
Other taxes payable 12,325 6,190
Short-term borrowings 15 27,733 35,763
------- -------
186,984 179,879
------- -------
NET CURRENT ASSETS/ (LIABILITIES) 33,144 (17,657)
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 755,053 692,284
======= =======
EQUITY
Equity attributable to equity holders of the Company
Share capital
-State-owned shares of RMB 1.00 each 157,922 157,922
-H shares of RMB 1.00 each 21,099 21,099
------- -------
179,021 179,021
Retained earnings 318,228 264,092
Reserves 143,242 143,564
------- -------
640,491 586,677
Minority interest 33,596 30,914
------- -------
TOTAL EQUITY 674,087 617,591
------- -------
NON CURRENT LIABILITIES
Long-term borrowings 15 42,667 35,634
Other long-term obligations 874 995
Asset retirement obligations 16 19,186 18,481
Deferred taxation 18,239 19,583
------- -------
80,966 74,693
------- -------
755,053 692,284
======= =======
The accompanying notes are an integral part of these financial statements.
2
PETROCHINA COMPANY LIMITED
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
For the six months ended June 30, 2007 and June 30, 2006
(Amounts in millions)
SIX MONTHS ENDED JUNE 30
---------------------------------
NOTES 2007 2006
----- ------------- -----------------
RMB RMB
CASH FLOWS FROM OPERATING ACTIVITIES
Profit for the period 86,316 85,243
Adjustments for:
Taxation 7 24,026 30,675
Depreciation, depletion and amortisation 31,228 29,910
Dry hole costs 6,123 4,430
Share of profit of associates and jointly controlled
entities (2,785) (1,482)
Reversal of provision for impairment of receivables,
net 6 (2,254) (55)
Reversal of write down in inventories, net 6 (68) (80)
Impairment of available-for-sale investments, net 6 -- 1
Impairment of associates and jointly controlled
entities, net 6 5 --
Loss on disposal of property, plant and equipment 6 407 185
Loss on disposal of intangible assets -- 1
Profit on disposal of associates and jointly
controlled entities (371) (18)
(Profit)/loss on disposal of available-for-sale
investments (105) 4
Dividend income 6 (75) (173)
Interest income (819) (959)
Interest expense 2,050 1,848
Advance payments on long-term operating leases (1,350) (2,080)
Changes in working capital:
Accounts receivable, prepaid expenses and other
current assets (20,616) (15,800)
Inventories (8,221) (17,862)
Accounts payable and accrued liabilities 30,365 23,517
------- -------
CASH GENERATED FROM OPERATIONS 143,856 137,305
Interest received 835 934
Interest paid (2,039) (1,851)
Income taxes paid (32,814) (35,563)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 109,838 100,825
------- -------
The accompanying notes are an integral part of these financial statements.
3
PETROCHINA COMPANY LIMITED
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
For the six months ended June 30, 2007 and June 30, 2006
(Amounts in millions)
SIX MONTHS ENDED JUNE 30
---------------------------------
NOTES 2007 2006
----- ------------- -----------------
RMB RMB
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (58,304) (45,574)
Acquisition of associates and jointly controlled
entities (1,018) (1,085)
Acquisition of available-for-sale investments (300) (59)
Acquisition of intangible assets (265) (318)
Acquisition of other non-current assets (501) (387)
Repayment of capital by associates and jointly
controlled entities 1,552 83
Purchase of minority interest in subsidiaries 17 (86) (4,574)
Proceeds from disposal of property, plant and equipment 512 100
Proceeds from disposal of associates and jointly
controlled entities 1,015 69
Proceeds from disposal of available-for-sale
investments 164 3
Proceeds from disposal of intangible and other
non-current assets -- 2
Net proceeds of investments in collateralised loans
with maturities not greater than three months -- 235
Dividends received 365 1,283
Decrease/(Increase) in time deposits with maturities
over three months 30 (1,752)
------- -------
NET CASH USED FOR INVESTING ACTIVITIES (56,836) (51,974)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of short-term borrowings (15,405) (13,109)
Repayments of long-term borrowings (13,741) (14,007)
Dividends paid to minority interest (1,905) (1,493)
Dividends paid to equity holders of the Company 9 (27,694) (32,282)
Capital contribution from minority interest 266 63
Increase in short-term borrowings 16,139 13,541
Increase in long-term borrowings 12,269 10,094
Change in other long-term obligations (121) (98)
------- -------
NET CASH USED FOR FINANCING ACTIVITIES (30,192) (37,291)
------- -------
CURRENCY TRANSLATION DIFFERENCES 402 165
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 23,212 11,725
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 48,559 80,905
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 71,771 92,630
======= =======
The accompanying notes are an integral part of these financial statements
4
PETROCHINA COMPANY LIMITED
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended June 30, 2007 and June 30, 2006
(Amounts in millions)
ATTRIBUTABLE TO EQUITY HOLDERS
OF THE COMPANY
----------------------------------------
SHARE RETAINED MINORITY TOTAL
CAPITAL EARNINGS RESERVES SUBTOTAL INTEREST EQUITY
------- -------- -------- -------- -------- -------
RMB RMB RMB RMB RMB RMB
Balance at January 1, 2006 179,021 203,812 132,556 515,389 28,278 543,667
Currency translation differences -- -- 439 439 924 1,363
------- -------- ------- ------- ------- -------
Net income recognised directly in
equity -- -- 439 439 924 1,363
Profit from January 1 to June 30,
2006 -- 80,681 -- 80,681 4,562 85,243
------- -------- ------- ------- ------- -------
Total recognised income from
January 1 to June 30, 2006 -- 80,681 439 81,120 5,486 86,606
------- -------- ------- ------- ------- -------
Final dividends for 2005 (Note 9) -- (32,282) -- (32,282) -- (32,282)
Dividends to minority interest -- -- -- -- (1,426) (1,426)
Purchase of minority interest in
subsidiaries (Note 17) -- -- (2,178) (2,178) (2,396) (4,574)
Other movement in minority interest -- -- -- -- 130 130
------- -------- ------- ------- ------- -------
Balance at June 30, 2006 179,021 252,211 130,817 562,049 30,072 592,121
======= ======== ======= ======= ======= =======
Balance at January 1, 2007 179,021 264,092 143,564 586,677 30,914 617,591
Currency translation differences -- -- (258) (258) (164) (422)
------- -------- ------- ------- ------- -------
Net loss recognised directly in
equity -- -- (258) (258) (164) (422)
Profit from January 1 to June 30,
2007 -- 81,830 -- 81,830 4,486 86,316
------- -------- ------- ------- ------- -------
Total recognised income/(loss)
from January 1 to June 30, 2007 -- 81,830 (258) 81,572 4,322 85,894
------- -------- ------- ------- ------- -------
Final dividends for 2006 (Note 9) -- (27,694) -- (27,694) -- (27,694)
Dividends to minority interest -- -- -- -- (1,895) (1,895)
Purchase of minority interest in
subsidiaries (Note 17) -- -- (64) (64) (22) (86)
Other movement in minority interest -- -- -- -- 11 11
Minority interest paid-in capital -- -- -- -- 266 266
------- -------- ------- ------- ------- -------
Balance at June 30, 2007 179,021 318,228 143,242 640,491 33,596 674,087
======= ======== ======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
5
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
1 ORGANISATION AND PRINCIPAL ACTIVITIES
PetroChina Company Limited (the "Company") was established in the People's
Republic of China (the "PRC" or "China") on November 5, 1999 as a joint stock
company with limited liability as a result of a group restructuring (the
"Restructuring") of China National Petroleum Corporation ("CNPC") in preparation
for the listing of the Company's shares in Hong Kong and in the United States of
America. The Company and its subsidiaries are collectively referred to as the
"Group".
In accordance with the restructuring agreement between CNPC and the Company
effective as of November 5, 1999, the Company issued 160 billion state-owned
shares in exchange for the assets and liabilities transferred to the Company by
CNPC. The 160 billion state-owned shares were the initial registered capital of
the Company with a par value of RMB1.00 per share. On April 7, 2000, the Company
issued 17,582,418,000 shares, represented by 13,447,897,000 H shares and
41,345,210 American Depositary Shares ("ADSs", each representing 100 H shares)
in a global offering and the trading of the H shares and the ADSs on the Stock
Exchange of Hong Kong Limited and the New York Stock Exchange commenced on April
7, 2000 and April 6, 2000, respectively. Pursuant to the approval of the China
Securities Regulatory Commission, 1,758,242,000 state-owned shares of the
Company owned by CNPC were converted into H shares for sale in the global
offering.
In September 2005, the Company issued 3,196,801,818 new H shares at HK$
6.00 per share and net proceed to the Company was approximately RMB 19,692. CNPC
also sold 319,680,182 state-owned shares it held concurrently with PetroChina's
sale of new H shares in September 2005.
The Group is principally engaged in (i) the exploration, development and
production of crude oil and natural gas, (ii) the refining, transportation,
storage and marketing of crude oil and petroleum products, (iii) the production
and sale of chemicals, and (iv) the transmission, marketing and sale of natural
gas (Note 18).
2 BASIS OF PREPARATION AND ACCOUNTING POLICIES
The unaudited consolidated interim condensed financial statements
("financial statements") have been prepared in accordance with International
Accounting Standard ("IAS") 34 "Interim Financial Reporting". The accounting
policies and methods of computation used in the preparation of the consolidated
interim condensed financial statements are consistent with those used in the
preparation of the consolidated financial statements for the year ended December
31, 2006 except for the ones modified by the Group as a result of the adoption
of the new or revised International Financial Reporting Standards ("IFRS").
In 2007, the Group adopted the following new standard and interpretation
which are relevant to its operations and mandatory for financial year ending
December 31, 2007. The adoption of the new standard and interpretation did not
result in substantial changes to the Group's accounting policies. In summary:
-- IFRS 7, Financial Instruments: Disclosure, and the complementary
Amendment to IAS 1, Presentation of Financial Statements - Capital
Disclosure.
-- International Financial Reporting Interpretations Committee ("IFRIC")
Interpretation 10, Interim Financial Reporting and Impairment.
6
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
The following interpretations are mandatory for financial year ending
December 31, 2007 but are not relevant to the Group's operations.
-- IFRIC Interpretation 7, Applying the Restatement Approach under IAS
29, Financial Reporting in Hyperinflationary Economies.
-- IFRIC Interpretation 9, Reassessment of Embedded Derivatives.
The consolidated interim condensed financial statements presented herein
should be read in conjunction with the consolidated financial statements and
notes thereto included in the annual report of the Group for the year ended
December 31, 2006. The consolidated interim condensed financial statements as of
June 30, 2007 and for the six month periods ended June 30, 2007 and June 30,
2006 included herein are unaudited but reflect, in the opinion of the Board of
Directors, all adjustments (which include only normal recurring adjustments)
necessary to properly prepare the consolidated interim condensed financial
statements, in all material respects, in accordance with IAS 34. The results of
operations for the six months ended June 30, 2007 are not necessarily indicative
of the results of operations expected for the year ending December 31, 2007.
Costs that incur unevenly during the financial year are anticipated or
deferred in these interm financial statements only if it would be also
appropriate to anticipate or defer such costs at the end of the financial year.
3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on
historical experience and other factors, including expectations of future events
that are believed to be reasonable under the circumstances.
The matters described below are considered to be the most critical in
understanding the judgements that are involved in preparing the Group's
consolidated financial statements.
(A) ESTIMATION OF OIL AND NATURAL GAS RESERVES
Oil and natural gas reserves are key elements in the Group's investment
decision-making process. They are also an important element in testing for
impairment. Changes in proved oil and natural gas reserves, particularly proved
developed reserves, will affect unit-of-production depreciation, depletion and
amortisation charges to the consolidated profit and loss account. Proved reserve
estimates are subject to revision, either upward or downward, based on new
information, such as from development drilling and production activities or from
changes in economic factors, including product prices, contract terms or
development plans. In general, changes in the technical maturity of oil and
natural gas reserves resulting from new information becoming available from
development and production activities have tended to be the most significant
causes of annual revisions. Changes to the Group's estimates of proved reserves,
particularly proved developed reserves, affect the amount of depreciation,
depletion and amortisation recorded in the Group's consolidated financial
statements for property, plant and equipment related to oil and gas production
activities. A reduction in proved developed reserves will increase depreciation,
depletion and amortisation charges (assuming constant production) and reduce net
profit.
7
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
(B) ESTIMATED IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including oil and gas properties, are
reviewed for possible impairment when events or changes in circumstances
indicate that the carrying amount may not be recoverable. Determination as to
whether and how much an asset is impaired involves management estimates and
judgements such as future prices of crude oil, refined products and chemical
products and production profile. However, the impairment reviews and
calculations are based on assumptions that are consistent with the Group's
business plan. These assumptions also include those relative to the pricing
regulations by the regulatory agencies in China that the princing regulations
will not restrict the profit margins of refined products to levels that will be
insufficient to recover the carrying cost of the related production assets.
Favourable changes to some assumptions may allow the Group to avoid the need to
impair any assets in these years, whereas unfavourable changes may cause the
assets to become impaired.
(C) ESTIMATION OF ASSET RETIREMENT OBLIGATIONS
Provisions are recognised for the future decommissioning and restoration of
oil and gas properties. The amounts of the provisions recognised are the present
values of the estimated future expenditures. The estimation of the future
expenditures is based on current local conditions and requirements, including
legal requirements, technology, price level, etc.. In addition to these factors,
the present values of these estimated future expenditures are also impacted by
the estimation of the economic life of oil and gas properties. Changes in any of
these estimates will impact the operating results and the financial position of
the Group over the remaining economic life of oil and gas properties.
4 TURNOVER
Turnover represents revenues from the sale of crude oil, natural gas,
refined products and petrochemical products and from the transportation of crude
oil and natural gas. Analysis of turnover by segment is shown in Note 18.
5 TAXES OTHER THAN INCOME TAXES
Taxes other than income taxes include RMB 14,942 for the six months ended
June 30, 2007 (Six months ended June 30, 2006: RMB 10,289) of special levy which
is paid or payable on the portion of income realised by petroleum exploration
enterprises from the sales of domestic crude oil at prices higher than a
specific level. This levy was imposed by the PRC government and became effective
from March 26, 2006.
8
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
6 PROFIT BEFORE TAXATION
SIX MONTHS
ENDED JUNE 30
-----------------
2007 2006
------- -------
RMB RMB
Profit before taxation is arrived at after crediting and
charging of the following items:
Crediting:
Dividends income from available-for-sale investments 75 173
Reversal of provision for impairment of receivables 2,321 108
Reversal of impairment of available-for-sale investments -- 1
Reversal of write down in inventories 68 136
Charging:
Amortisation on intangible and other assets 688 589
Cost of inventories (approximates cost of goods sold)
recognised as expense 208,074 146,273
Depreciation on property, plant and equipment, including
impairment provision
- owned assets 29,916 28,677
- assets under finance leases 3 3
Impairment of available-for-sale investments -- 2
Impairment of investments in associates and jointly
controlled entities 5 --
Provision for impairment of receivables 67 53
Interest expense (Note (i)) 2,050 1,848
Loss on disposal of property, plant and equipment 407 185
Operating lease expenses 3,166 2,429
Repair and maintenance 3,687 2,978
Research and development expenses 2,796 2,024
Write down in inventories -- 56
Note (i): Interest expense
Interest expense 2,624 2,252
Less: Amounts capitalised (574) (404)
------- -------
2,050 1,848
======= =======
9
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
7 TAXATION
SIX MONTHS
ENDED JUNE 30
---------------
2007 2006
------ ------
RMB RMB
Income tax 25,415 28,682
Deferred tax (1,389) 1,993
------ ------
24,026 30,675
====== ======
In accordance with the relevant PRC income tax rules and regulations, the
PRC income tax rate applicable to the Group is principally 33% (2006: 33%).
Operations of the Group in certain regions in China have qualified for certain
tax incentives in the form of reduced income tax rate to 15% through the year
2010 and accelerated depreciation of certain property plant and equipment.
The tax on the Group's profit before taxation differs from the theoretical
amount that would arise using the statutory tax rate in the PRC applicable to
the Group as follows:
SIX MONTHS
ENDED JUNE 30
-----------------
2007 2006
------- -------
RMB RMB
Profit before taxation 110,342 115,918
------- -------
Tax calculated at a tax rate of 33% 36,413 38,253
Prior year tax return adjustment 451 243
Effect of income taxes from international operations in
excess of taxes at the PRC statutory rate 389 --
Effect of preferential tax rate (8,256) (7,319)
Effect of enacted changes in PRC Corporate Income Tax
Law(i) (4,482) --
Tax effect of income not subject to tax (1,226) (983)
Tax effect of expenses not deductible for tax purposes 737 481
------- -------
Tax charge 24,026 30,675
======= =======
(i) On March 16, 2007, the National People's Congress approved the Corporate
Income Tax Law of the PRC (the "new CIT Law"), which is effective from 1
January 2008. Under the new CIT Law, the corporate income tax rate
applicable to the Group from January 1, 2008 will be 25%, replacing the
previously applicable tax rate of 33%.
The management of the Group has reassessed its taxation position as of June
30, 2007 by reference to the enacted new CIT Law and accordingly a net decrease
in tax charge for the six months ended 30 June 2007 of RMB 4,482 million was
recorded.
10
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
8 BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share for the six months ended June 30, 2007
and June 30, 2006 have been computed by dividing the profit attributable to
equity holders of the Company by the number of 179,021 million shares issued and
outstanding for the relevant periods.
There are no potential dilutive ordinary shares.
9 DIVIDENDS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
SIX MONTHS
ENDED JUNE 30
---------------
2007 2006
------ ------
RMB RMB
Final dividends attributable to equity holders of the
Company for 2005 (Note (i)) -- 32,282
Final dividends attributable to equity holders of the
Company for 2006 (Note (ii)) 27,694 --
------ ------
27,694 32,282
====== ======
Note:
(i) Final dividends attributable to equity holders of the Company in respect of
2005 of RMB 0.180325 per share amounting to a total of RMB 32,282 were
approved by the shareholders in the Annual General Meeting on May 26, 2006,
and accounted for in equity as an appropriation of retained earnings in the
six months ended June 30, 2006. These dividends were paid on June 9, 2006.
(ii) Final dividends attributable to equity holders of the Company in respect of
2006 of RMB 0.154699 per share amounting to a total of RMB 27,694 were
approved by the shareholders in the Annual General Meeting on May 16, 2007,
and accounted for in equity as an appropriation of retained earnings in the
six months ended June 30, 2007. These dividends were paid on June 1, 2007.
(iii) As authorised by shareholders in the Annual General Meeting on May 16,
2007, the Board of Directors, in a meeting held on August 23, 2007,
resolved to distribute interim dividends attributable to equity holders of
the Company in respect of 2007 of RMB 0.205690 per share amounting to a
total of RMB 36,823. These financial statements do not reflect this
dividend payable, as it was not authorised until after the balance sheet
date.
11
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
10 PROPERTY, PLANT AND EQUIPMENT
RMB
---------
COST OR VALUATION
At January 1, 2007 1,057,279
Additions 51,163
Disposals or write off (13,504)
Currency translation differences (63)
---------
At June 30, 2007 1,094,875
---------
ACCUMULATED DEPRECIATION
At January 1, 2007 (411,942)
Charge for the period (29,919)
Disposals or write off 4,082
Currency translation differences (55)
---------
At June 30, 2007 (437,834)
---------
NET BOOK VALUE
At June 30, 2007 657,041
=========
RMB
---------
COST OR VALUATION
At January 1, 2006 921,606
Additions 47,263
Disposals or write off (6,115)
Currency translation differences 1,938
---------
At June 30, 2006 964,692
---------
ACCUMULATED DEPRECIATION
At January 1, 2006 (357,716)
Charge for the period (28,680)
Disposals or write off 1,370
Currency translation differences (772)
---------
At June 30, 2006 (385,798)
---------
NET BOOK VALUE
At June 30, 2006 578,894
=========
RMB
---------
COST OR VALUATION
At July 1, 2006 964,692
=========
Additions 104,967
=========
Disposals or write off (10,183)
=========
Currency translation differences (2,197)
---------
At December 31, 2006 1,057,279
---------
ACCUMULATED DEPRECIATION
At July 1, 2006 (385,798)
=========
Charge for the period (29,995)
=========
Disposals or write off 2,971
=========
Currency translation differences 880
---------
At December 31, 2006 (411,942)
---------
NET BOOK VALUE
At December 31, 2006 645,337
=========
12
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
The depreciation charge of the Group for the six months ended June 30, 2007
included RMB Nil (six months ended June 30, 2006: RMB 1,535) relating to
impairment provision for property, plant and equipment. Of this amount, RMB Nil
(six months ended June 30, 2006: RMB 1,535) was for the Refining and Marketing
segment.
A valuation of the Group's property, plant and equipment, excluding oil and
gas reserves, was carried out during 1999 by independent valuers. The valuation
was based on depreciated replacement costs.
The June 1999 revaluation resulted in RMB 80,549 in excess of the carrying
value immediately prior to the revaluation and a revaluation loss of RMB 1,122
on certain property, plant and equipment.
As at September 30, 2003, a revaluation of the Group's refining and
chemical production equipment was undertaken by a firm of independent valuers,
China United Assets Appraiser Co., Ltd, in the PRC on a depreciated replacement
cost basis.
The September 2003 revaluation resulted in RMB 872 in excess of the
carrying value immediately prior to the revaluation and a revaluation loss of
RMB 1,257 on certain property, plant and equipment.
As at March 31, 2006, a revaluation of the Group's oil and gas properties
was undertaken by independent valuers, China United Assets Appraiser Co., Ltd
and China Enterprise Appraisals, on a depreciated replacement cost basis. The
revaluation did not result in significant difference from their carrying value.
Bank borrowings are secured on property, plant and equipment at net book
value of RMB 10 at June 30, 2007 (December 31, 2006: RMB 39).
11 INVENTORIES
JUNE 30, 2007 DECEMBER 31, 2006
------------- -----------------
RMB RMB
Crude oil and other raw materials 31,733 24,143
Work in progress 5,826 5,493
Finished goods 47,394 47,263
Spare parts and consumables 47 41
------ ------
85,000 76,940
Less: Write down in inventories (673) (902)
------ ------
84,327 76,038
====== ======
13
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
12 ACCOUNTS RECEIVABLE
JUNE 30, 2007 DECEMBER 31, 2006
------------- -----------------
RMB RMB
Accounts receivable due from third parties 9,646 9,498
Accounts receivable due from related
parties 9,979 2,247
Less: Provision for impairment of
receivables (3,226) (3,257)
------ ------
16,399 8,488
====== ======
Amounts due from related parties are interest free and unsecured (Note 21).
The aging analysis of accounts receivable at June 30, 2007 and December 31,
2006 is as follows:
JUNE 30, 2007 DECEMBER 31, 2006
------------- -----------------
RMB RMB
Within 1 year 16,165 8,299
Between 1 to 2 years 120 33
Between 2 to 3 years 32 59
Over 3 years 3,308 3,354
------ ------
19,625 11,745
====== ======
The Group offers its customers credit terms up to 180 days, except for
certain selected customers.
13 NOTES RECEIVABLE
Notes receivable represent mainly the bills of acceptance issued by banks
for sale of goods and products. All notes receivable are due within one year.
14
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
14 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
JUNE 30, 2007 DECEMBER 31, 2006
------------- -----------------
RMB RMB
Trade payables 27,027 22,490
Advances from customers 7,520 9,310
Salaries and welfare payable 12,594 8,844
Accrued expenses 7,242 10
Dividends payable by subsidiaries to
minority shareholders 56 60
Interest payable 207 3
Construction fee and equipment cost
payables 19,528 28,349
One-time employee housing remedial payment
payable 1,412 933
Amounts due to related parties 47,981 35,273
Others 13,014 14,910
------- -------
136,581 120,182
======= =======
Amounts due to related parties are interest free, unsecured and with no
fixed terms of repayment (Note 21).
The aging analysis of trade payables at June 30, 2007 and December 31, 2006
is as follows:
JUNE 30, 2007 DECEMBER 31, 2006
------------- -----------------
RMB RMB
Within 1 year 23,683 19,994
Between 1 to 2 years 2,934 1,966
Between 2 to 3 years 78 196
Over 3 years 332 334
------ ------
27,027 22,490
====== ======
15
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
15 BORROWINGS
JUNE 30, 2007 DECEMBER 31, 2006
------------- -----------------
RMB RMB
Short-term borrowings 27,733 35,763
Long-term borrowings 42,667 35,634
------ ------
70,400 71,397
====== ======
The movements in the borrowings can be analysed as follows:
RMB
-------
Balance at January 1, 2007 71,397
Increase in borrowings 28,408
Repayments of borrowings (29,146)
Currency translation differences (259)
-------
Balance at June 30, 2007 70,400
=======
The long-term borrowings can be analysed as follows:
JUNE 30, 2007 DECEMBER 31, 2006
------------- -----------------
RMB RMB
Unsecured Loans 54,262 55,905
Secured loans 305 336
Current portion of long-term borrowings (11,900) (20,607)
-------
42,667 35,634
======= =======
The long-term borrowings can be further analysed as follows:
Bank loans
- Wholly repayable within five years 16,915 19,234
- Not wholly repayable within five
years 3,819 2,789
Loans other than bank loans
- Wholly repayable within five years 22,652 22,896
- Not wholly repayable within five
years 11,181 11,322
------- -------
54,567 56,241
Current portion of long-term borrowings (11,900) (20,607)
------- -------
42,667 35,634
======= =======
16
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
Loans other than bank loans not wholly repayable within five years are
repayable by installments through April 2032. Interest is charged on the
outstanding balances at rates ranging from 1.55% to 5.89% per annum(December 31,
2006: 1.55% to 5.87% per annum).
At June 30, 2007 and December 31, 2006, the Group's long-term borrowings
were repayable as follows:
BANK LOANS LOANS OTHER THAN BANK LOANS
--------------------------------- ---------------------------------
JUNE 30, 2007 DECEMBER 31, 2006 JUNE 30, 2007 DECEMBER 31, 2006
------------- ----------------- ------------- -----------------
RMB RMB RMB RMB
Within 1 year 6,397 11,575 5,503 9,032
Between 1 to 2 years 2,969 6,781 9,403 5,016
Between 2 to 5 years 8,044 1,415 7,894 9,034
After 5 years 3,324 2,252 11,033 11,136
------ ------ ------ ------
20,734 22,023 33,833 34,218
====== ====== ====== ======
16 ASSET RETIREMENT OBLIGATIONS
RMB
------
At January 1, 2007 18,481
Liabilities incurred 145
Liabilities settled (3)
Accretion expense 549
Currency translation differences 14
------
At June 30, 2007 19,186
======
17
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
17 SUBSIDIARIES
The principal subsidiaries of the Company are:
PAID-UP TYPE OF ATTRIBUTABLE
COUNTRY OF CAPITAL LEGAL EQUITY
COMPANY NAME INCORPORATION RMB ENTITY INTEREST% PRINCIPAL ACTIVITIES
------------ ------------- ------- ------- ------------ --------------------
*Daqing Oilfield PRC 47,500 PHI 100.00 Exploration,
Company Limited production and the
sale of crude oil
and natural gas;
production and sale
of refined products
Jinzhou Petrochemical PRC 788 PSI 100.00 Production and sale
Company Limited (i) of oil and chemical
products
Jilin Chemical PRC 3,561 PSI 99.61 Production and sale
Industrial Company of chemical products
Limited (ii)
Daqing Yu Shu Lin PRC 1,272 PHI 88.16 Exploration and
Oilfield Company production of crude
Limited oil and natural gas
*CNPC Exploration and PRC 100 PHI 50.00 Exploration and
Development Company production of crude
Limited oil and natural gas
outside of the PRC
PHI -- Limited liability company.
PSI -- Joint stock company with limited liability.
* -- Subsidiaries directly held by the Company as of June 30, 2007.
(i) Pursuant to the resolution passed at the Board of Directors' meeting held
on October 26, 2005, the Company offered to acquire all of the 150,000,000
outstanding A shares of Jinzhou Petrochemical Company Limited ("JPCL") from
minority shareholders at RMB 4.25 per share. As at June 30, 2007, the
Company had completed the acquisition of 100.00% of the outstanding shares
of JPCL and paid a total cash consideration of RMB 638 and acquired
150,000,000 A shares, representing approximately 19.05% of the total issued
shares of JPCL. The excess of the cost of purchase over the carrying value
of the underlying assets and liabilities acquired was recorded in equity.
JPCL was delisted from the Shenzhen Stock Exchange on January 4, 2006.
(ii) Pursuant to the resolution passed by the Board of Directors'meeting held on
October 26, 2005, the Company offered to acquire all the 200,000,000
outstanding A shares and 964,778,000 H shares (including ADS) of Jilin
Chemical Industrial Company Limited ("JCIC") from minority shareholders at
RMB 5.25 per A share and HK$2.80 per H share respectively. As at June 30,
2007, the Company had paid a total cash consideration of RMB 3,799 and
acquired 189,357,726 A shares and 961,495,999 H shares (including ADS),
representing approximately 32.32% of the total issued shares of JCIC. Upon
this acquisition, the Company owns 99.61% of the outstanding shares of
JCIC. The excess of the cost of purchase over the
18
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
carrying value of the underlying assets and liabilities acquired was
recorded in equity. JCIC was delisted from the Stock Exchange of Hong Kong
Limited and the New York Stock Exchange on January 23, 2006 and February
15, 2006, respectively. JCIC was delisted from the Shenzhen Stock Exchange
on February 20, 2006.
(iii) Pursuant to the resolution passed by the Board of Directors' meeting held
on October 26, 2005, the Company offered to acquire all of the 200,000,000
outstanding A shares of Liaohe Jinma Oilfield Company Limited ("LJOCL")
from minority shareholders at RMB 8.80 per share. As at June 30, 2007, the
Company had completed the acquisition of 100.00% of the outstanding shares
of LJOCL and paid a total cash consideration of RMB 1,763 and acquired
200,000,000 A shares, representing approximately 18.18% of the total issued
shares of LJOCL. The excess of the cost of purchase over the carrying value
of the underlying assets and liabilities acquired was recorded in equity.
LJOCL was delisted from the Shenzhen Stock Exchange on January 4, 2006. In
May 2007, the Liaoning Administration for Industry and Commerce approved
the LJOCL's deregistration as an incorporated company.
The acquisitions of interest from minority shareholders of the above
non-wholly owned principal subsidiaries and another non-wholly owned subsidiary
in the six months ended June 30, 2007 resulted in a total adjustment to equity
attributable to equity holders of the Company of RMB 64 (six months ended June
30, 2006: 2,178).
18 SEGMENT INFORMATION
The Group is engaged in a broad range of petroleum related activities
through its four major business segments: Exploration and Production, Refining
and Marketing, Chemicals and Marketing and Natural Gas and Pipeline.
The Exploration and Production segment is engaged in the exploration,
development, production and sales of crude oil and natural gas.
The Refining and Marketing segment is engaged in the refining,
transportation, storage and marketing of crude oil and petroleum products.
The Chemicals and Marketing segment is engaged in the production and sale
of basic petrochemical products, derivative petrochemical products, and other
chemical products.
The Natural Gas and Pipeline segment is engaged in the sale of natural gas
and the transmission of natural gas, crude oil and refined products.
In addition to these four major business segments, the Other segment
includes the assets, liabilities, income and expenses relating to cash
management, financing activities, research and development, and other business
services to the operating business segments of the Group.
Most assets and operations of the Group are located in the PRC, which is
considered as one geographic location in an economic environment with similar
risks and returns. In addition to its operations in the PRC, the Group also has
overseas operations through subsidiaries engaging in the exploration and
production of crude oil and natural gas.
The accounting policies of the operating segments are the same as those
described in Note 2 - "Basis of Preparation and Accounting Policies".
19
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
Operating segment information for the six months ended June 30, 2006 and 2007 is
presented below:
PRIMARY REPORTING FORMAT-BUSINESS SEGMENTS
EXPLORATION REFINING CHEMICALS NATURAL
AND AND AND GAS AND
SIX MONTHS ENDED JUNE 30, 2006 PRODUCTION MARKETING MARKETING PIPELINE OTHER TOTAL
------------------------------ ----------- --------- --------- -------- ------- ---------
RMB RMB RMB RMB RMB RMB
Turnover (including intersegment) 211,012 255,106 39,565 18,233 373 524,289
Less: Intersegment sales (170,761) (21,142) (3,072) (2,587) (182) (197,744)
-------- ------- ------ ------ ------- ---------
Turnover from external customers 40,251 233,964 36,493 15,646 191 326,545
======== ======= ====== ====== ======= =========
Depreciation, depletion and
amortisation (17,748) (6,614) (2,732) (2,578) (238) (29,910)
Segment result 128,906 (3,001) 4,266 4,669 (965) 133,875
Other costs (4,454) (10,888) (1,358) (82) (1,800) (18,582)
-------- ------- ------ ------ ------- ---------
Profit/(loss) from operations 124,452 (13,889) 2,908 4,587 (2,765) 115,293
-------- ------- ------ ------ -------
Finance costs (857)
Share of profit of associates and
jointly controlled entities 1,049 409 14 -- 10 1,482
---------
Profit before taxation 115,918
Taxation (30,675)
---------
Profit for the period 85,243
=========
Interest income (including
intersegment) 2,316 592 353 87 3,184 6,532
Less: Intersegment interest income (5,573)
---------
Interest income from external entities 959
=========
Interest expense (including
intersegment) (2,623) (1,744) (344) (773) (1,937) (7,421)
Less: Intersegment interest expense 5,573
---------
Interest expense to external entities (1,848)
=========
Segment assets 480,544 215,454 81,609 72,506 579,557 1,429,670
Elimination of intersegment balances (598,597)
Investments in associates and jointly
controlled entities 6,154 5,802 128 15 54 12,153
---------
Total assets 843,226
=========
Segment capital expenditure
- for property, plant and equipment 32,933 6,169 3,938 3,840 372 47,252
Segment liabilities 158,437 149,353 34,199 43,508 145,529 531,026
Other liabilities 68,002
Elimination of intersegment balances (347,923)
---------
Total liabilities 251,105
=========
20
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
PRIMARY REPORTING FORMAT "C BUSINESS SEGMENTS (CONTINUED)
EXPLORATION REFINING CHEMICALS NATURAL
AND AND AND GAS AND
SIX MONTHS ENDED JUNE 30, 2006 PRODUCTION MARKETING MARKETING PIPELINE OTHER TOTAL
------------------------------ ----------- --------- --------- -------- ------- ---------
RMB RMB RMB RMB RMB RMB
Turnover (including intersegment) 205,390 314,863 49,860 23,216 483 593,812
Less: Intersegment sales (165,789) (26,842) (5,036) (3,191) (228) (201,086)
-------- ------- ------ ------ ------- ---------
Turnover from external customers 39,601 288,021 44,824 20,025 255 392,726
======== ======= ====== ====== ======= =========
Depreciation, depletion and
amortisation (20,249) (4,961) (2,828) (2,895) (295) (31,228)
Segment result 101,388 18,562 7,586 6,352 (1,202) 132,686
Other costs (4,952) (14,637) (2,188) (224) (1,555) (23,556)
-------- ------- ------ ------ ------- ---------
Profit/(loss) from operations 96,436 3,925 5,398 6,128 (2,757) 109,130
-------- ------- ------ ------ -------
Finance costs (1,573)
Share of profit of associates and
jointly controlled entities 2,518 240 20 -- 7 2,785
---------
Profit before taxation 110,342
Taxation (24,026)
---------
Profit for the period 86,316
=========
Interest income (including
intersegment) 3,475 795 367 50 3,951 8,638
Less: Intersegment interest income (7,819)
---------
Interest income from external entities 819
=========
Interest expense (including
intersegment) (3,705) (2,239) (416) (922) (2,587) (9,869)
Less: Intersegment interest expense 7,819
---------
Interest expense to external entities (2,050)
=========
Segment assets 498,819 225,496 78,682 74,322 626,882 1,504,201
Elimination of intersegment balances (594,611)
Investments in associates and jointly
controlled entities 27,088 5,143 132 20 64 32,447
---------
Total assets 942,037
=========
Segment capital expenditure
- for property, plant and equipment 42,196 4,841 1,163 2,471 350 51,021
Segment liabilities 192,988 138,291 34,560 42,528 101,461 509,828
Other liabilities 60,222
Elimination of intersegment balances (302,100)
---------
Total liabilities 267,950
=========
21
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
Note (a)-Intersegment sales are conducted principally at market prices.
Note (b)-Segment result is profit from operations before other costs. Other
costs include selling, general and administrative expenses and other
income, net.
Note (c)-Segment result for the six months ended June 30, 2006 and 2007
included impairment for property, plant and equipment (Note 10).
Note (d)-Other liabilities mainly include income tax payable, other taxes
payable and deferred taxation.
Note (e)-Elimination of intersegment balances represents elimination of
intersegment current accounts and investments.
SECONDARY REPORTING FORMAT - GEOGRAPHICAL SEGMENTS
CAPITAL
TURNOVER TOTAL ASSETS EXPENDITURE
----------------- ----------------- ---------------
SIX MONTHS ENDED JUNE 30 2007 2006 2007 2006 2007 2006
------------------------ ------- ------- ------- ------- ------ ------
RMB RMB RMB RMB RMB RMB
PRC 380,444 313,927 878,198 783,842 46,955 44,990
Other (Exploration and Production) 12,282 12,618 63,839 59,384 4,066 2,262
------- ------- ------- ------- ------ ------
392,726 326,545 942,037 843,226 51,021 47,252
======= ======= ======= ======= ====== ======
19 CONTINGENT LIABILITIES
(A) BANK AND OTHER GUARANTEES
At June 30, 2007, the Group had contingent liabilities in respect of
guarantees made to China Petroleum Finance Company Limited ("CP Finance"), a
subsidiary of CNPC, from which it is anticipated that no material liabilities
will arise.
JUNE 30, 2007 DECEMBER 31, 2006
------------- -----------------
RMB RMB
Guarantee of borrowings of associates from
CP Finance 162 162
Guarantee of borrowings of third party from
a State-controlled bank -- 41
--- ---
162 203
=== ===
(B) ENVIRONMENTAL LIABILITIES
CNPC and the Group have operated in China for many years. China has adopted
extensive environmental laws and regulations that affect the operation of the
oil and gas industry. The outcome of environmental liabilities under proposed or
future environmental legislation cannot reasonably be estimated at present, and
could be material. Under existing legislation, however, management believes that
there are no probable liabilities, except for the amounts which have already
been reflected in the financial statements that will have a material adverse
effect on the financial position of the Group.
22
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
(C) LEGAL CONTINGENCIES
The Group is the named defendant in certain insignificant lawsuits as well
as the named party in other proceedings arising in the ordinary course of
business. While the outcome of such contingencies, lawsuits or other proceedings
cannot be determined at present, the management of the Group believes that any
resulting liabilities will not have a material adverse effect on the financial
position of the Group.
(D) LEASING OF ROADS, LAND AND BUILDINGS
According to the Restructuring Agreement entered into between the Company
and CNPC in 1999 upon the formation of the Company:
- CNPC will use its best endeavours to obtain formal land use right
certificates to replace the entitlement certificates in relation to
the 28,649 parcels of land which were leased or transferred to the
Company from CNPC, within one year from August, September and October
1999 when the relevant entitlement certificates were issued;
- CNPC will complete, within one year from November 5, 1999, the
necessary governmental procedures for the requisition of the
collectively-owned land on which 116 service stations owned by the
Company are located; and
- CNPC will obtain individual building ownership certificates in the
name of the Company for all of the 57,482 buildings transferred to the
Company by CNPC, before November 5, 2000.
As at June 30, 2007, CNPC has obtained formal land use right certificates
in relation to 27,494 out of the above-mentioned 28,649 parcels of land and some
building ownership certificates for the above-mentioned buildings, but has not
fully completed the necessary governmental procedures for the above-mentioned
service stations located on collectively-owned land. The Directors of the
Company confirm that the use of and the conduct of relevant activities at the
above-mentioned parcels of land, service stations and buildings are not affected
by the fact that the relevant land use right certificates or individual building
ownership certificates have not been obtained or the fact that the relevant
governmental procedures have not been completed. In management's opinion, the
outcome of the above events will not have a material adverse effect on the
operating results or the financial position of the Group.
(E) GROUP INSURANCE
Except for limited insurance coverage for vehicles and certain assets
subject to significant operating risks, the Group does not carry any other
insurance for property, facilities or equipment with respect to its business
operations. In addition, the Group does not carry any third-party liability
insurance against claims relating to personal injury, property and environmental
damages or business interruption insurance since such insurance coverage is not
customary in China. While the effect of under-insurance on future incidents
cannot be reasonably assessed at present, management believes that it may have a
material impact on the operating results but will not have a material adverse
effect on the financial position of the Group.
23
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
20 COMMITMENTS
(A) OPERATING LEASE COMMITMENTS
Operating lease commitments of the Group are mainly for leasing of land and
buildings and equipment. Leases range from one to 50 years and usually do not
contain renewal options. Future minimum lease payments as of June 30, 2007 and
December 31, 2006 under non-cancellable operating leases are as follows:
JUNE 30, 2007 DECEMBER 31, 2006
------------- -----------------
RMB RMB
First year 3,079 3,099
Second year 2,815 2,749
Third year 2,825 2,714
Fourth year 3,043 3,040
Fifth year 3,038 3,102
Thereafter 78,773 80,076
------ ------
93,573 94,780
====== ======
(B) CAPITAL COMMITMENTS
JUNE 30, 2007 DECEMBER 31, 2006
------------- -----------------
RMB RMB
Contracted but not provided for
Oil and gas properties 307 273
Plant and equipment 11,652 8,658
Other 266 262
------ -----
12,225 9,193
====== =====
24
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
(C) LONG-TERM NATURAL GAS SUPPLY COMMITMENTS
The Group markets a portion of its natural gas production under long-term
take-or-pay contracts. Under these contracts, the customers are required to take
or pay, and the Group is obligated to deliver, minimum quantities of natural gas
annually. The prices for the natural gas are based on those approved by the PRC
National Development and Reform Commission at the time of deliveries.
At June 30, 2007 and December 31, 2006, future minimum delivery commitments
under contracts are as follows:
JUNE 30, 2007 DECEMBER 31, 2006
------------- -----------------
QUANTITIES QUANTITIES
(BILLION OF (BILLION OF
CUBIC FEET) CUBIC FEET)
2007 362 720
2008 885 885
2009 943 943
2010 1,002 1,002
2011 1,050 1,050
2012 and thereafter 10,460 10,460
------ ------
14,702 15,060
====== ======
(D) EXPLORATION AND PRODUCTION LICENSES
The Company is obligated to make annual payments with respect to its
exploration and production licenses to the Ministry of Land and Resources.
Payments incurred were approximately RMB 354 for the six months ended June 30,
2007 (six months ended June 30, 2006 were RMB 304).
Estimated annual payments for the next five years are as follows:
JUNE 30, 2007
-------------
RMB
2007 396
2008 780
2009 800
2010 850
2011 900
25
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
21 RELATED PARTY TRANSACTIONS
CNPC, the immediate parent of the Company, is a state-controlled enterprise
directly controlled by the PRC government. The PRC government is the Company's
ultimate controlling party. State-controlled enterprises and their subsidiaries,
in addition to CNPC group companies, directly or indirectly controlled by the
PRC government are also related parties of the Group. Neither CNPC nor the PRC
government publishes financial statements available for public use.
The Group has extensive transactions with other companies of the CNPC
group. Because of the relationship, it is possible that the terms of the
transactions between the Group and other members of the CNPC group are not the
same as those that would result from transactions with other related parties or
wholly unrelated parties.
As a result of the restructuring of CNPC to form the Company in 1999, the
Company and CNPC entered into a Comprehensive Products and Services Agreement
for a range of products and services which may be required and requested by
either party; a Land Use Rights Leasing Contract under which CNPC leases 42,476
parcels of land located throughout the PRC to the Company; and a Buildings
Leasing Contract under which CNPC leases 191 buildings located throughout the
PRC to the Company.
The term of the current Comprehensive Products and Services Agreement were
amended in 2005 and the agreement is effective through December 31, 2008. The
products and services to be provided by the CNPC group to the Company under the
Comprehensive Products and Services Agreement include construction and technical
services, production services, supply of material services, social services,
ancillary services and financial services. The products and services are
provided in accordance with (1) state-prescribed prices; or (2) where there is
no state-prescribed price, relevant market prices; or (3) where neither (1) nor
(2) is applicable, actual cost incurred; or the agreed contractual price, being
the actual cost plus a margin of no more than 15% for certain construction and
technical services, and 3% for all other types of services.
The Land Use Rights Leasing Contract provides for the lease of an aggregate
area of approximately 1,145 million square meters of land located throughout the
PRC to business units of the Group for a term of 50 years at an annual fee of
RMB 2,000. The total fee payable for the lease of all such property may, after
every 10 years, be adjusted by agreement between the Company and CNPC.
Under the Buildings Leasing Contract, 191 buildings covering an aggregate
area of 269,770 square meters located throughout the PRC are leased at an
aggregate annual fee of RMB 39 for a term of 20 years. The Company also entered
into a Supplemental Buildings Leasing Agreement with CNPC in September 2002 to
lease an additional 404 buildings covering approximately 442,730 square meters
at an annual rental of RMB 157. The Supplemental Buildings Leasing Agreement
will expire at the same time as the Building Leasing Agreement.
In addition to the related party information shown elsewhere in the
financial statements, the following is a summary of significant related party
transactions entered into in the ordinary course of business between the Group
and its related parties during the periods and balances arising from related
party transactions at the end of the periods indicated below:
26
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
(A) BANK DEPOSITS
NOTE JUNE 30, 2007 DECEMBER 31, 2006
---- ------------- -----------------
RMB RMB
Bank deposits balance
CP Finance (i) 9,371 8,937
State-controlled banks and other
financial institutions 58,435 37,744
------ ------
67,806 46,681
====== ======
SIX MONTHS
ENDED JUNE 30
-------------
NOTE 2007 2006
---- ----- -----
RMB RMB
Interest income from bank deposits
CP Finance (i) 70 61
State-controlled banks and other
financial institutions 439 853
--- ---
509 914
=== ===
(i) CP Finance is a subsidiary of CNPC and a non-bank financial
institution, established with the approval from the People's Bank of
China.
The deposits yield interest at prevailing saving deposit rates.
(B) SALES OF GOODS AND SERVICES
SIX MONTHS
ENDED JUNE 30
---------------
2007 2006
------ ------
RMB RMB
Sales of goods
Associates and jointly controlled
entities
- Crude Oil 1,570 1,638
- Refined Products 11,131 5,407
- Chemical Products 753 1
Fellow subsidiaries (CNPC Group)
- Crude Oil 1,208 864
- Refined Products 7,238 8,081
- Chemical Products 3,208 2,553
- Natural Gas 887 542
- Other 199 205
Other state-controlled enterprises
- Crude Oil 21,901 17,780
- Refined Products 43,380 39,875
- Chemical Products 2,847 4,110
- Natural Gas 4,883 4,788
------ ------
99,205 85,844
====== ======
27
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
Sales of goods to related parties are conducted at market prices.
SIX MONTHS
ENDED JUNE 30
-------------
2007 2006
----- -----
RMB RMB
Sales of services
Fellow subsidiaries (CNPC Group) 871 864
Other state-controlled enterprises 4,177 3,493
----- -----
5,048 4,357
===== =====
Sales of services principally represent the provision of the services in
connection with the transportation of crude oil and natural gas at market
prices.
(C) PURCHASES OF GOODS AND SERVICES
SIX MONTHS END
JUNE 30
---------------
NOTES 2007 2006
------ ------ ------
RMB RMB
Purchases of goods (i)
Associates and jointly controlled
entities 12,136 7,049
Other state-controlled enterprises 27,482 18,897
Purchases of services
Associates and jointly controlled
entities 27 22
Fellow subsidiaries (CNPC Group)
-Fees paid for construction and
technical services (ii)
-exploration and development services (iii) 22,994 19,455
-other construction and technical
services (iv) 9,921 11,006
-Fees for production services (v) 11,653 11,243
-Social services charges (vi) 998 923
-Ancillary services charges (vii) 1,038 1,033
-Commission expense and other charges (viii) 307 451
Other state-controlled enterprises (ix) 833 2,334
------ ------
87,389 72,413
====== ======
28
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
(i) Purchases of goods principally represent the purchase of raw
materials, spare parts and low cost consumables at market prices.
(ii) Under the Comprehensive Products and Services Agreement entered into
between CNPC and the Company, certain construction and technical
services provided by CNPC are charged at cost plus an additional
margin of no more than 15%, including exploration and development
services and oilfield construction services.
(iii) Direct costs for exploration and development services comprise
geophysical survey, drilling, well cementing, logging and well
testing.
(iv) The fees paid for other construction and technical services comprise
fees for construction of refineries and chemical plants and technical
services in connection with oil and gas exploration and production
activities such as oilfield construction, technology research,
engineering and design, etc..
(v) The fees paid for production services comprise fees for the repair of
machinery, supply of water, electricity and gas at the
state-prescribed prices, provision of services such as communications,
transportation, fire fighting, asset leasing, environmental protection
and sanitation, maintenance of roads, manufacture of replacement parts
and machinery at cost or market prices.
(vi) These represent expenditures for social welfare and support services
which are charged at cost.
(vii) Ancillary services charges represent mainly fees for property
management, the provision of training centers, guesthouses, canteens,
public shower rooms, etc. at market prices.
(viii) CNPC purchases materials on behalf of the Company and charges
commission thereon. The commission is calculated at rates ranging from
1% to 5% of the goods purchased.
(ix) Purchases of services from other state-controlled enterprises
principally represent the purchases of the construction and technical
services at market prices.
(D) PURCHASES OF ASSETS
SIX MONTHS
ENDED JUNE 30
-------------
2007 2006
----- -----
RMB RMB
Purchases of assets
Fellow subsidiaries (CNPC Group) 956 573
Other state-controlled enterprises 548 446
----- -----
1,504 1,019
===== =====
Purchases of assets principally represent the purchases of manufacturing
equipment, office equipment, transportation equipment, etc., at market prices.
29
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
(E) PERIOD-END BALANCES ARISING FROM SALES/PURCHASES OF
GOODS/SERVICES/ASSETS
JUNE 30, 2007 DECEMBER 31, 2006
------------- -----------------
RMB RMB
Accounts receivable from related parties at
the end of the period
Associates and jointly controlled
entities 499 82
Fellow subsidiaries (CNPC Group) 688 599
Other state-controlled enterprises 8,792 1,566
------ ------
9,979 2,247
Less: Provision for impairment
Associates and jointly controlled
entities (4) (5)
Fellow subsidiaries (CNPC Group) (220) (232)
Other state-controlled enterprises (854) (861)
------ ------
(1,078) (1,098)
------ ------
8,901 1,149
====== ======
Prepayment and other receivables from
related parties at the end of the period
Associates and jointly controlled
entities 2,648 4,307
Parent (CNPC) -- 196
Fellow subsidiaries (CNPC Group) 15,972 7,220
Other state-controlled enterprises 8,263 4,202
------ ------
26,883 15,925
Less: Provision for impairment
Associates and jointly controlled
entities (194) (212)
Fellow subsidiaries (CNPC Group) (9) (4)
Other state-controlled enterprises (299) (299)
------ ------
(502) (515)
------ ------
26,381 15,410
====== ======
Accounts payable and accrued liabilities to
related parties at the end of the period
Associates and jointly controlled
entities 376 1,444
Parent (CNPC) 969 2,321
Fellow subsidiaries (CNPC Group) 33,172 26,046
Other state-controlled enterprises 13,464 5,462
------ ------
47,981 35,273
====== ======
30
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
SIX MONTHS
ENDED JUNE 30
-------------
2007 2006
---- ----
RMB RMB
Provision for impairment of accounts
receivable from related parties charged
to the profit and loss account
Associates and jointly controlled
entities (1) 6
Fellow subsidiaries (CNPC Group) (9) 4
Other state-controlled enterprises (1) (31)
--- ---
(11) (21)
=== ===
Provision for impairment of prepayment and
other receivables from related parties
charged to the profit and loss account
Associates and jointly controlled
entities (18) (20)
Fellow subsidiaries (CNPC Group) 5 (29)
Other state-controlled enterprises -- (5)
--- ---
(13) (54)
=== ===
(F) LEASES
SIX MONTHS
ENDED JUNE 30
-------------
NOTES 2007 2006
----- ----- -----
RMB RMB
Advance operating lease payments paid to
related parties (i)
Parent (CNPC) -- --
Other state-controlled enterprises 1 --
----- -----
1 --
===== =====
Other operating lease payments paid to
related parties
Parent (CNPC) (ii) 1,018 1,025
Other state-controlled enterprises -- --
----- -----
1,018 1,025
===== =====
(i) Advance operating lease payments principally represent the advance payment
paid for the long-term operating lease of land and gas stations at prices
prescribed by local governments or market prices.
(ii) Other operating lease payments to CNPC principally represent the rental
paid for the operating lease of land and buildings at the prices prescribed
in the Land Use Rights Leasing Contract, the Building Leasing Contract and
Supplemental Buildings Leasing Agreement with CNPC.
31
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
JUNE 30, 2007 DECEMBER 31, 2006
------------- -----------------
RMB RMB
Operating lease payable to related parties
Parent (CNPC) 13 --
Other state-controlled enterprises 18 7
--- ---
31 7
=== ===
(G) LOANS
SIX MONTHS
ENDED JUNE 30
-------------
LOANS TO RELATED PARTIES 2007 2006
------------------------ ----- -----
RMB RMB
Loans to associates:
Beginning of the period 1,800 1,640
Loans advanced during the period 210 809
Loan repayments received (64) (482)
Interest charged 83 68
Interest received (72) (56)
----- -----
End of the period 1,957 1,979
===== =====
Loans to associates are included in prepaid expenses and other current
assets.
The loans to related parties are mainly with interest rates ranging from
9.07% to 9.36% per annum as of June 30, 2007 (December 31, 2006: 9.07% to
9.36%).
32
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
SIX MONTHS
ENDED JUNE 30
-----------------
LOANS FROM RELATED PARTIES NOTES 2007 2006
-------------------------- ----- ------- -------
RMB RMB
Loans from CP Finance: (i)
Beginning of the period 27,184 27,319
Loans received during the period 2,246 5,357
Loan repayments paid (2,346) (6,620)
Interest charged 486 610
Interest paid (490) (600)
Currency translation differences (36) (26)
------- -------
End of the period 27,044 26,040
======= =======
Loans from state-controlled banks and other
financial institutions: (ii)
Beginning of the period 32,810 31,178
Loans received during the period 22,138 15,226
Loan repayments paid (23,446) (12,525)
Interest charged 895 854
Interest paid (909) (879)
Currency translation differences (148) (88)
------- -------
End of the period 31,340 33,766
======= =======
Loans from other related parties: (iii)
Beginning of the period 5 62
Loan repayments paid -- (1)
Interest charged -- 1
Interest paid -- (1)
Currency translation differences -- --
------- -------
End of the period 5 61
======= =======
(i) The loans from CP Finance are mainly with interest rates ranging from 4.46%
to 6.08% per annum as of June 30, 2007 (December 31, 2006: 4.46% to 6.06%),
with maturities through 2032;
(ii) The loans from state-controlled banks and other financial institutions are
mainly with interest rates ranging from zero to 8.66% per annum as of June
30, 2007 (December 31, 2006: zero to 8.66%), with maturities through 2038;
(iii) The loans from other related parties are mainly with interest rates at
6.32% per annum as of June 30, 2007 (December 31, 2006: 6.32%), with no
fixed repayment term.
33
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
The secured loans from related parties amounted to RMB 10 at June 30, 2007
(December 31, 2006: RMB 23).
The guaranteed loans amounted to RMB 550 at June 30, 2007 (December 31,
2006: RMB 597). All these guaranteed loans are from non-related parties,
long-term and guaranteed by CNPC.
(H) KEY MANAGEMENT COMPENSATION
SIX MONTHS
ENDED JUNE 30
-----------------
2007 2006
------- -------
RMB'000 RMB'000
Fee for key management personnel
-Directors and supervisors 458 816
Salaries, allowances and other benefits
-Directors and supervisors 1,450 985
-Other key management 1,282 687
Contribution to retirement benefit scheme
-Directors and supervisors 72 28
-Other key management 72 25
----- -----
3,334 2,541
===== =====
The Company has adopted a share option scheme which is a share appreciation
right arrangement payable in cash to the recipients upon exercise of the rights
which became effective on the initial public offering of the H shares of the
Company on April 7, 2000. The eligible management personnel (comprising
directors, supervisors and senior executives) of the Company are eligible for
the scheme. 87,000,000 units of share appreciation rights were granted to senior
executives. 35,000,000 units were granted to the directors and supervisors; of
these 35,000,000 units, 33,130,000 units are outstanding, net of subsequent
forfeiture of 1,870,000 units by a former independent director.
The rights can be exercised on or after April 8, 2003, the third
anniversary of the grant, up to April 7, 2008. The exercise price is the price
as at the initial public offering being HK$ 1.28 per share or approximately RMB
1.36 per share.
As at June 30, 2007, none of the key management holders of the share
appreciation rights had exercised the rights. The liability for the units
awarded under the scheme has been calculated based on fair value of the
liability incurred and is expensed over the vesting period. The liability for
key management's appreciation rights is remeasured at each balance sheet date to
its fair value and amounted to approximately RMB 334 at June 30, 2007 (December
31, 2006: RMB 329 million).
34
PETROCHINA COMPANY LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED
FINANCIAL STATEMENTS
For the six months ended June 30, 2007
(Amounts in millions)
(I) CONTINGENT LIABILITIES
The Group disclosed in Note 19 its contingent liabilities arising from the
guarantees made for related parties.
(J) COLLATERAL FOR BORROWINGS
The Group pledged time deposits as collateral with Citibank, N.A, Singapore
Branch for the borrowings of subsidiaries and associates. As at June 30, 2007,
the balance of these time deposits amounted to RMB 2,316 (December 31, 2006: RMB
2,499), including RMB 305 (December 31, 2006: RMB 312) for the borrowings of
subsidiaries and RMB 2,011 (December 31, 2006: RMB 2,187) for the borrowings of
associates.
22 SUBSEQUENT EVENT
At the extraordinary general meeting of the Company held on August 10,
2007, the special shareholders'resolution in relation to the initial public
offering of A Shares of the Company was passed, approving the allotment and
issue of new A Shares by the Company and authorising the Board and a special
Board committee be fully authorised to determine and deal with matters relating
to the issue of the A Shares.
The Company has decided to allot and issue of not more than 4 billion A
Shares (including the A Shares to be issued under the over-allotment option).
The final number of A Shares to be issued shall be determined by the Board or
the special Board committee pursuant to the authorisation granted under the
shareholders' resolution after taking into account the PRC's securities market
conditions and the Company's business development needs and shall be subject to
approvals by the China Securities Regulatory Commission and other relevant
regulatory authorities. The timetable for the A Share issue will also depend on
the capital market conditions, the progress in obtaining all the relevant
approvals and such other circumstances. Upon completion of the A Share issue,
the Company will apply for the listing of and permission to deal in the A Shares
on the Shanghai Stock Exchange.
The net proceeds from the A Share issue, after deducting related expenses,
is proposed to be used mainly for the exploration and development of the
Company's domestic petroleum and gas resources; the construction of the
Company's large-scale refinery, petroleum and gas pipeline projects; and the
acquisition of overseas petroleum and gas resources. Details of the A Share
issue were set out in the circular to the shareholders of the Company dated June
25, 2007.
35
PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON SIGNIFICANT DIFFERENCES BETWEEN
IFRS AND US GAAP (UNAUDITED)
For the six months ended June 30, 2007
(Amounts in millions)
SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP
The consolidated interim condensed financial statements have been prepared
in accordance with International Financial Reporting Standards ("IFRS"), which
differ in certain material respects from the accounting principles generally
accepted in the United States of America ("US GAAP"). Such differences involve
methods for measuring the amounts shown in the financial statements, as well as
additional disclosures required by US GAAP.
Effect on net income of significant differences between IFRS and US GAAP is
as follows:
SIX MONTHS
ENDED JUNE 30
---------------
2007 2006
------ ------
RMB RMB
Profit for the period under IFRS 86,316 85,243
US GAAP adjustments:
Share of profit of jointly controlled
entities (32) 1,220
Depreciation charges on property, plant
and equipment revaluation gain 2,128 2,340
Loss on disposal of revalued property,
plant and equipment 26 21
Tax effect (2,275) (779)
Minority interest (4,530) (5,202)
One-time remedial payments for staff
housing (1,234) --
Depreciation charges on property, plant
and equipment arising from purchase
of minority interest in subsidiaries (110) (42)
------ ------
Net income under US GAAP 80,289 82,801
====== ======
Basic and diluted net income per share
under US GAAP (RMB) 0.45 0.46
====== ======
36
PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON SIGNIFICANT DIFFERENCES BETWEEN
IFRS AND US GAAP (UNAUDITED)
For the six months ended June 30, 2007
(Amounts in millions)
Effect on equity of significant differences between IFRS and US GAAP is as
follows:
JUNE 30, 2007 DECEMBER 31, 2006
------------- -----------------
RMB RMB
Equity under IFRS 674,087 617,591
US GAAP adjustments:
Acquisition of PetroKazakhstan Inc. 22,129 22,129
Share of profit of jointly controlled
entities 2,705 2,737
Deemed distribution to CNPC
International Limited (3,044) (3,044)
Payment for the acquisition of
PetroKazakhstan Inc. (21,376) (21,376)
Reversal of property, plant and
equipment revaluation gain (80,555) (80,555)
Depreciation charges on property, plant
and equipment revaluation gain 57,927 55,799
Reversal of property, plant and
equipment revaluation loss 1,513 1,513
Depreciation charges on property, plant
and equipment revaluation loss (1,459) (1,459)
Loss on disposal of revalued property,
plant and equipment 2,059 2,033
Tax effect 5,210 7,485
Minority interest (33,679) (30,953)
Effect on the retained earnings from the
one-time remedial payments for staff
housing borne by the state
shareholder of the Company (3,787) (2,553)
Effect on the other reserves of the
shareholders' equity from the
one-time remedial payments for staff
housing borne by the state
shareholder of the Company 3,787 2,553
Purchase of minority interest in
subsidiaries (Note 17 to the
consolidated interim condensed
financial statements) 3,658 3,594
Depreciation charges on property, plant
and equipment arising from purchase
of minority interest in subsidiaries (312) (202)
Currency translation differences (830) (822)
------- -------
Shareholders'equity under US GAAP 628,033 574,470
======= =======
37
PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON SIGNIFICANT DIFFERENCES BETWEEN
IFRS AND US GAAP (UNAUDITED)
For the six months ended June 30, 2007
(Amounts in millions)
Changes in shareholders' equity under US GAAP for each of the periods ended June
30, 2007 and June 30, 2006 are as follows:
SIX MONTHS
ENDED JUNE 30
-----------------
2007 2006
------- -------
RMB RMB
Beginning of the period 574,470 510,141
Net income for the period 80,289 82,801
Final dividends for year 2005 -- (32,282)
Final dividends for year 2006 (27,694) --
Purchase of minority interest in subsidiary
(Note 17 to the consolidated interim
condensed financial statements) -- 382
One-time remedial payments for staff
housing 1,234 --
Currency translation differences (266) 230
------- -------
End of the period 628,033 561,272
======= =======
In preparing the summary of differences between IFRS and US GAAP,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the estimates of revenues and expenses. Accounting
estimates have been employed in these financial statements to determine reported
amounts, including realisability, useful lives of tangible and intangible
assets, income taxes and other factors. Actual results may differ from those
estimates.
A summary of the principal differences and additional disclosures
applicable to the Group is set out below:
(A) ACQUISITION OF PETROKAZAKHSTAN INC.
The Group acquired a 67% equity interest in PetroKazakhstan Inc. from CNPC
International Limited ("CNPCI"), a subsidiary of CNPC, effective on December 28,
2006 for RMB 21,376. As both CNPCI and the Group are under common control by
CPNC, the acquisition of the 67% equity interest in PetroKazakhstan Inc. has
been accounted for in a manner similar to pooling of interest under US GAAP
accounting and the US GAAP financial data reflects the acquisition of the 67%
equity interest in PetroKazakhstan Inc. since PetroKazakhstan Inc. was first
acquired by CNPCI on October 26, 2005.
On December 15, 2006, PetroKazakhstan Inc. paid to CNPCI a dividend amount
to RMB 3,044 and this was recorded as a deemed distribution to CNPCI.
38
PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON SIGNIFICANT DIFFERENCES BETWEEN
IFRS AND US GAAP (UNAUDITED)
For the six months ended June 30, 2007
(Amounts in millions)
The purchase consideration for the acquisition of the 67% equity interest
in PetroKazakhstan Inc. was paid by the Group to CNPCI on December 28, 2006.
(B) REVALUATION OF PROPERTY, PLANT AND EQUIPMENT
The property, plant and equipment, excluding oil and gas reserves,
transferred to the Company by CNPC were appraised during 1999 by a firm of
independent valuers on a depreciated replacement cost basis. The 1999
revaluation resulted in RMB 80,549 in excess of the carrying value immediately
prior to the revaluation and a revaluation loss of RMB 1,122 on certain
property, plant and equipment.
As at September 30, 2003, a revaluation of the Group's refining and
chemical production equipment was undertaken by a firm of independent valuers
registered in the PRC, China United Assets Appraiser Co., Ltd, on a depreciated
replacement cost basis. The September 2003 revaluation resulted in RMB 872 in
excess of the carrying value immediately prior to the revaluation and a
revaluation loss of RMB 1,257 on certain property, plant and equipment.
As at March 31, 2006, a revaluation of the Group's oil and gas properties
was undertaken by independent valuers, China United Assets Appraiser Co., Ltd
and China Enterprise Appraisals, on a depreciated replacement cost basis. The
revaluation did not result in significant difference from their carrying value.
The depreciation charge, which includes impairment charge, on the
revaluation surplus from January 1, 2007 to June 30, 2007 was RMB 2,128 and from
January 1, 2006 to June 30, 2006 was RMB 2,340 respectively.
The loss on disposal of revalued property, plant and equipment from January
1, 2007 to June 30, 2007 was RMB 26, and from January 1, 2006 to June 30, 2006
was RMB 21.
For purposes of reconciling to the US GAAP financial data, the effect of
the revaluation, the related depreciation charges and loss on disposal was
reversed. A deferred tax asset relating to the reversal of the effect of
revaluation in 1999 was established, together with a corresponding increase in
the equity. Under a special approval granted by the Ministry of Finance, the
effect of the revaluation in 1999 is available as additional depreciation base
for purposes of determining taxable income.
39
PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON SIGNIFICANT DIFFERENCES BETWEEN
IFRS AND US GAAP (UNAUDITED)
For the six months ended June 30, 2007
(Amounts in millions)
(C) ONE-TIME REMEDIAL PAYMENTS FOR STAFF HOUSING
The Ministry of Finance of the PRC issued several public notices and
regulations during the years ended December 31, 2000 and 2001 with respect to
the one-time remedial payments for staff housing payable to certain employees
who joined the workforce prior to December 31, 1998 and have housing conditions
below local standards as determined in accordance with government regulations
and guidelines. These Ministry of Finance notices and regulations also provided
that the portion of remedial payments attributable to the periods prior to a
restructuring of the employer enterprise from a wholly state-owned status to a
less than wholly state-owned status is to be borne by the state shareholder of
the enterprise.
The restructuring that resulted in the formation of the Group took place in
November 1999. As such, the one-time remedial housing payments payable to the
eligible employees of the Group are to be borne by the state shareholder of the
Group.
Under IFRS, such direct payments to employees or reimbursements will not be
recorded through the consolidated profit and loss account of the Group. US GAAP
contains no such exemption but requires this principal shareholder's action on
behalf of the Company to be recorded in the consolidated profit and loss
account. In the last quarter of year 2002, the Group and CNPC estimated the
amount payable to qualified employees of the Group and accordingly, an amounat
of RMB 2,553 was reflected in determining net income of the Group for the year
ended December 31, 2002 under US GAAP. Since this amount is borne by CNPC, a
corresponding amount has been included as an addition to the other reserves in
the shareholders' equity of the Group. During the period ended June 30, 2007,
there is a RMB 1,234 increase in the estimated amount. CNPC funded this estimate
payment through a portion of the 2006 final dividend paid by the Company.
(D) MINORITY INTEREST
In accordance with the revised International Accounting Standard ("IAS") 1
"Presentation of Financial Statements" and IAS 27 "Consolidated and Separate
Financial Statements", minority interest becomes part of the profit for the year
and total equity of the Group, respectively, whereas under US GAAP, it is
respectively excluded from the net income and equity of the Group.
This reconciling item includes the impact of minority interest's share of
the revaluation gain and loss, on the property, plant and equipment of
non-wholly owned subsidiaries and the impact of minority interest arising from
the acquisition of the 67% equity interest in PetroKazakhstan Inc. by a
non-wholly owned subsidiary of the Group to net income and equity under US GAAP.
40
PETROCHINA COMPANY LIMITED
SUPPLEMENTARY INFORMATION ON SIGNIFICANT DIFFERENCES BETWEEN
IFRS AND US GAAP (UNAUDITED)
For the six months ended June 30, 2007
(Amounts in millions)
(E) PURCHASE OF MINORITY INTEREST IN LISTED SUBSIDIARIES
The Company acquired certain outstanding A shares from the minority
interest of Jinzhou Petrochemical Company Limited ("JPCL") and Liaohe Jinma
Oilfield Company Limited ("LJOCL"), A shares and H shares (including ADS) from
minority interest of Jilin Chemical Industrial Company Limited ("JCIC"). Under
IFRS, the Company applies a policy of treating transactions with minority
interest as transactions with equity participants of the Group. Therefore, the
assets and liabilities of JPCL, LJOCL and JCIC additionally acquired by the
Company from minority interest were recorded by the Company at cost. The
difference between the Company's purchase cost and the book value of the
interests in JPCL, LJOCL and JCIC acquired by the Company from minority interest
was recorded in equity. Under US GAAP, the acquisition of additional minority
interest is accounted for under purchase method. Assets and liabilities
additionally acquired were restated to fair value and the difference of purchase
cost over fair value of the minority interest acquired and identified intangible
assets was recorded as goodwill. Additional depreciation charges were provided
for the assets which were restated to fair value.
(F) RECENT US ACCOUNTING PRONOUNCEMENTS
In February 2007, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standards No. 159, "The Fair Value Option for Financial
Assets and Financial Liabilities including an amendment of FASB Statement No.
115"("FAS 159"). This Statement permits an entity to choose to measure financial
instruments and certain other items similar to financial instruments at fair
value, with all subsequent changes in fair value for the financial instrument
reported in earnings. By electing the fair value option in conjunction with a
derivative, an entity can achieve an accounting result similar to a fair-value
hedge without having to comply with complex hedge accounting rules. This
Statement is effective January 1, 2008. The Group is currently evaluating the
impact of adopting FAS 159 but does not expect to have a material effect on the
Group's consolidated financial position and results of operations.
41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the consolidated
interim condensed financial statements for the Group and the notes thereto.
OVERVIEW
For the six months ended June 30, 2007, profit before taxation of the Group was
RMB110,342 million, representing a decrease of 4.8% compared with the same
period of the previous year. Net profit was RMB81,830 million, representing an
increase of 1.4% compared with the same period of the previous year. The
increase in net profit was primarily resulted from the Group's reassessment of
its taxation position pursuant to the requirements of the "Corporate Income Tax
Law of the People's Republic of China" (the "new CIT Law") approved by the
National People's Congress on March 16, 2007. As a result, the tax charge for
the reporting period was reduced, increasing the Group's net profit.
The Group actively implemented three main strategies in the areas of resources,
marketing and internationalisation of operations and strengthened efforts in
exploration and exploitation to maximise its upstream advantage, optimised the
downstream product mix, coordinated resources allocation, expedited major
pipelines construction and pipeline network, steadily expanded its international
operations, strengthened operation and management, emphasised safety operation,
environmental protection and energy saving. With the concerted efforts made by
all staff, the Group's production and operation remained steady and
profitability continued to remain at a high level.
For the six months ended June 30, 2007, the basic and diluted earnings per share
attributable to the equity holders of the Company were RMB0.46 (the six months
ended June 30, 2006: RMB0.45).
Comparison between the six months ended June 30, 2007 and the six months ended
June 30, 2006
CONSOLIDATED OPERATING RESULTS
Turnover Turnover increased 20.3% from RMB326,545 million for the six months
ended June 30, 2006 to RMB392,726 million for the six months ended June 30,
2007. This was primarily due to the increases in the realised selling prices and
sales volume of refined products and certain petrochemical products and
increases in the sales volume of crude oil and natural gas.
Operating Expenses Operating expenses increased 34.2% from RMB211,252 million
for the six months ended June 30, 2006 to RMB283,596 million for the six months
ended June 30, 2007. This was primarily due to an increase in the purchase costs
of crude oil, feedstock oil and refined products from external suppliers and an
increase in employee compensation costs and taxes other than income taxes, of
which:
Purchases, Services and Others Expenses Purchases, services and other expenses
increased 48.1% from RMB112,758 million for the six months ended June 30, 2006
to RMB166,995 million for the six months ended June 30, 2007. This was primarily
due to an increase in the purchase prices and purchase volumes of refined
products and feedstock oil from external suppliers that resulted in the increase
in the purchase expenses. The increase in purchase expenses also resulted from
the increase in the refined products supply operations during the reporting
period.
Employee Compensation Costs Employee compensa-tion costs rose 32.0% from
RMB16,993 million for the six months ended June 30, 2006 to RMB22,426 million
for the six months ended June 30, 2007. This was primarily due to (1) an
increase in the employees' salaries commensurate with the performance of the
Company and the evaluation system as well as increases in commodity prices; (2)
an increase in employees' salaries due to the increase in the number of
employees resulting from the expansion of the operation scale of the Group; and
(3) a sequential increase in the welfare expenses as a result of the increase in
the employees' salaries and change of government policies.
42
Exploration Expenses Exploration expenses increased 21.2% from RMB8,750 million
for the six months ended June 30, 2006 to RMB10,607 million for the six months
ended June 30, 2007. To further boost crude oil and natural gas resources, the
Group undertook more exploration activities for crude oil and natural gas.
Depreciation, Depletion and Amortisation Depreciation, depletion and
amortisation increased 4.4% from RMB29,910 million for the six months ended June
30, 2006 to RMB31,228 million for the six months ended June 30, 2007. This was
primarily due to an increase in the provision for depreciation, depletion and
amortisation that resulted from an increase in the average amount of property,
plant and equipment and the average net value of oil and gas properties for the
reporting period.
Selling, General and Administrative Expenses Selling, general and administrative
expenses increased 25.1% from RMB19,104 million for the six months ended June
30, 2006 to RMB23,901 million for the six months ended June 30, 2007. This was
primarily due to an increase in safety expenses incurred by the Company to
strengthen the management of potential operational risks in accordance with
regulatory requirements. In addition, the Company actively expanded its sales,
which resulted in an increase of transportation costs, leasing costs and etc.
Taxes other than Income Taxes Taxes other than income taxes increased 18.7% from
RMB24,259 million for the six months ended June 30, 2006 to RMB28,784 million
for the six months ended June 30, 2007. The increase was primarily due to the
imposition by the PRC government of a special levy on petroleum exploration
enterprises since March 26, 2006 which is payable on the portion of the income
realised from the sale of domestic crude oil with prices exceeding a certain
level. Therefore, the special levy borne by the Group for the first half of 2007
was higher than that for the same period of last year of RMB4,653 million.
Profit from Operations As a result of factors including the decrease in crude
oil prices, the increase in operating expenses and the increase in the special
levy for the reporting period, the Group's profit from operations was RMB109,130
million for the six months ended June 30, 2007, representing a decrease of 5.3%
compared to the same period of last year.
Net Exchange Loss Compared to the net exchange gain of RMB32 million for the six
months ended June 30, 2006, a net exchange loss of RMB342 million was recorded
for the six months ended June 30, 2007 as the exchange gain for the six months
ended June 30, 2007 was lesser than that for the same period of last year due to
the changes in the exchange rate.
Net Interest Expenses Net interest expenses increased 38.5% from RMB889 million
for the six months ended June 30, 2006 to RMB1,231 million for the six months
ended June 30, 2007. This increase reflected an increase in interest expenses
recognised as a result of the accretion expense in relation to asset retirement
obligations. In addition, the increase in basic interest rate for Renminbi loans
by the People's Bank of China in the first half of this year also resulted in an
increase in the interest expenses of the Group.
Profit Before Taxation As a result of the above factors, profit before taxation
of the Group was RMB110,342 million for the six months ended June 30, 2007,
representing a decrease of 4.8% compared to the same period of last year.
Taxation Taxation decreased 21.7% from RMB30,675 million for the six months
ended June 30, 2006 to RMB24,026 million for the six months ended June 30, 2007.
The decrease was due to (1) the decrease in taxable income for the reporting
period; and (2) the Group's reassessment of its taxation position pursuant to
the requirements of the new CIT Law and accordingly reducing the income tax for
the reporting period.
Net Profit As a result of the factors discussed above, net profit increased 1.4%
from RMB80,681 million for the six months ended June 30, 2006 to RMB81,830
million for the six months ended June 30, 2007.
43
(photo)
SEGMENT INFORMATION
The Group is engaged in a broad range of petroleum-related activities through
its four major business segments: Exploration and Production, Refining and
Marketing, Chemicals and Marketing and Natural Gas and Pipeline.
Exploration and Production
The Exploration and Production segment is engaged in the exploration,
development, production and sales of crude oil and natural gas.
Turnover Turnover decreased 2.7% from RMB211,012 million for the six months
ended June 30, 2006 to RMB205,390 million for the six months ended June 30,
2007. The decrease was primarily due to the revenue arising from the increase in
the sales volume of crude oil and natural gas being insufficient to offset the
lessened revenue resulting from the decrease in crude oil price. The average
realised crude oil price of the Group in the first half of 2007 was US$57.69 per
barrel, representing a decrease of 1.8% from US$58.75 per barrel compared with
the first half of 2006.
44
Intersegment sales revenue decreased 2.9% from RMB170,761 million for the six
months ended June 30, 2006 to RMB165,789 million for the six months ended June
30, 2007. The decrease was mainly due to a decrease in the crude oil price.
Operating Expenses Operating expenses increased 25.9% from RMB86,560 million for
the six months ended June 30, 2006 to RMB108,954 million for the six months
ended June 30, 2007. The increase was primarily due to increases in purchase
expenses, taxes other than income taxes, personnel costs and depreciation,
depletion and amortisation.
Profit from Operations Due to the above factors, profit from operations realised
in this segment was RMB96,436 million for the six months ended June 30, 2007,
representing a decrease of 22.5% compared to the same period of last year.
Refining and Marketing
The Refining and Marketing segment is engaged in the refining, transportation,
storage and marketing of crude oil and petroleum products.
Turnover Turnover increased 23.4% from RMB255,106 million for the six months
ended June 30, 2006 to RMB314,863 million for the six months ended June 30,
2007. The increase was primarily due to an increase in the realised selling
price and sales volume of key refined products of which:
Sales revenue from gasoline increased 16.7% from RMB57,985 million for the six
months ended June 30, 2006 to RMB67,680 million for the six months ended June
30, 2007. The increase was primarily due to an increase in the realised selling
prices and sales volume of gasoline. The average realised selling price of
gasoline surged 5.1% from RMB4,785 per ton for the six months ended June 30,
2006 to RMB5,030 per ton for the six months ended June 30, 2007. The sales
volume of gasoline increased 11.0% from 12.12 million tons for the six months
ended June 30, 2006 to 13.45 million tons for the six months ended June 30,
2007.
Sales revenue from diesel increased 19.1% from RMB101,637 million for the six
months ended June 30, 2006 to RMB121,061 million for the six months ended June
30, 2007. The increase was primarily due to an increase in the realised selling
price and sales volume of diesel. The average realised selling price of diesel
increased 8.9% from RMB4,191 per ton for the six months ended June 30, 2006 to
RMB4,563 per ton for the six months ended June 30, 2007. The sales volume of
diesel increased 9.4% from 24.25 million tons for the six months ended June 30,
2006 to 26.53 million tons for the six months ended June 30, 2007.
Sales revenue from kerosene increased 4.5% from RMB4,211 million for the six
months ended June 30, 2006 to RMB4,401 million for the six months ended June 30,
2007. The increase was primarily due to an increase in the selling prices of
kerosene.
(photo)
45
(photo)
Intersegment sales revenue increased 27.0% from RMB21,142 million for the six
months ended June 30, 2006 to RMB26,842 million for the six months ended June
30, 2007. The increase was due to an increase in the selling prices and sales
volume of key refined products.
Operating Expenses Operating expenses increased 15.6% from RMB268,995 million
for the six months ended June 30, 2006 to RMB310,938 million for the six months
ended June 30, 2007. The increase was primarily due to an increase in the
purchase costs of crude oil, feedstock oil and refined products from external
suppliers, and an increase in selling, general and administrative expenses. In
addition, the increase in operating expenses was also resulted from an increase
in the level of refined product supply operations in this period.
Profit from Operations Profit from operations realised in this segment amounted
to RMB3,925 million for the six months ended June 30, 2007, compared to a loss
from operations amounting to RMB13,889 million for the six months ended June 30,
2006. The change from loss to profit was primarily due to higher realised prices
of refined products in the domestic market in the first half of 2007 compared to
those of the same period in last year and a decrease in the purchase costs of
crude oil.
Chemicals and Marketing
The Chemicals and Marketing segment is engaged in the production and sales of
basic petrochemical products, derivative petrochemical products and other
chemical products.
Turnover Turnover increased 26.0% from RMB39,565 million for the six months
ended June 30, 2006 to RMB49,860 million for the six months ended June 30, 2007.
The growth in turnover was primarily due to an increase in the sales volume and
selling prices of certain petrochemical products.
Operating Expenses Operating expenses increased 21.3% from RMB36,657 million for
the six months ended June 30, 2006 to RMB44,462 million for the six months ended
46
(photo)
June 30, 2007. The increase was primarily due to increases in the purchase
prices for raw materials and selling, general and administrative expenses.
Profit from Operations Due to the above factors, this segment realised profit
from operations of RMB5,398 million for the six months ended June 30, 2007,
representing an increase of 85.6% from that for the six months ended June 30,
2006.
Natural Gas and Pipeline
The Natural Gas and Pipeline segment is engaged in the transmission of natural
gas, crude oil and refined products and the sales of natural gas.
Turnover Turnover increased 27.3% from RMB18,233 million for the six months
ended June 30, 2006 to RMB23,216 million for the six months ended June 30, 2007.
The increase was primarily due to (1) an increase in the sales volume of natural
gas; and (2) an increase in the volume of natural gas from pipeline transmission
and the average price for pipeline transmission of natural gas.
47
Operating Expenses Operating expenses increased 25.2% from RMB13,646 million for
the six months ended June 30, 2006 to RMB17,088 million for the six months ended
June 30, 2007. The increase was primarily due to an increase in the purchase
costs of natural gas and an increase in depreciation charges.
Profit from Operations Due to the above factors, this segment realised profit
from operations of RMB6,128 million for the six months ended June 30, 2007,
representing an increase of 33.6% from that for the six months ended June 30,
2006.
LIQUIDITY AND CAPITAL RESOURCES
As at June 30, 2007, the Group's primary sources of funds were cash generated
from operating activities, and short-term and long-term borrowings. The Group's
funds were primarily used for operating activities, capital expenditures,
repayment of short-term and long-term borrowings and distribution of dividends
to equity holders of the Company.
As at June 30, 2007, short-term borrowings made up approximately 3.7% of the
Group's capital employed as compared with approximately 5.2% as at December 31,
2006. The Group's ability to obtain adequate financing may be affected by our
financial position, the operating results and the conditions of the domestic and
foreign capital markets. The Group must seek approvals from the relevant PRC
government authorities before raising capital in the domestic and foreign
capital markets. In general, the Group must obtain the PRC government's
approvals for any project involving significant capital investments in the
Refining and Marketing segment, the Chemicals and Marketing segment and the
Natural Gas and Pipeline segment.
The Group plans to fund its capital expenditures and related investments
principally from cash flows generated from operating activities and short-term
and long-term borrowings. For the six months ended June 30, 2007, net cash flows
generated from operating activities was RMB109,838 million. As at June 30, 2007,
the Group had RMB71,771 million in cash and cash equivalents. Cash and cash
equivalents were primarily denominated in Renminbi (with Renminbi and United
States Dollar accounting for approximately 92.1% and 7.9% respectively).
The table below sets forth the cash flows of the Group for the six months ended
June 30, 2007 and June 30, 2006 respectively and the amounts of cash and cash
equivalents as at the end of each period:
SIX MONTHS ENDED JUNE 30
-------------------------
2007 2006
----------- -----------
RMB MILLION RMB MILLION
Net cash flows generated from operating
activities 109,838 100,825
Net cash amount used for investing
activities (56,836) (51,974)
Net cash amount used for financing
activities (30,192) (37,291)
Currency translation differences 402 165
Cash and cash equivalents as at the end of
each period 71,771 92,630
48
NET CASH FLOWS FROM OPERATING ACTIVITIES
The net cash flows of the Group generated from operating activities for the six
months ended June 30, 2007 was RMB109,838 million, representing an increase of
8.9% compared with RMB100,825 million generated for the six months ended June
30, 2006. This increase was primarily due to the changes in cash related to the
operating activities of the Group during the reporting period.
As at June 30, 2007, the Group had working capital of RMB33,144 million while
the Group had net current liabilities in excess of the current assets in the
amount of RMB17,657 million as at December 31, 2006. The increase in working
capital was primarily due to increases in accounts receivable, advanced
payments, inventory, cash and cash equivalents.
NET CASH FLOWS USED FOR FINANCING ACTIVITIES
The net cash flows used by the Group for its financing activities during the six
months ended June 30, 2007 decreased by 19.0% compared with that for the six
months ended June 30, 2006. This was mainly due to the increase in short-term
and long-term loans in the first half of 2007 and a lower level of dividends
payment made to shareholders of the Company when compared with the same period
last year.
The net borrowings of the Group as at June 30, 2007 and December 31, 2006,
respectively, are as follows:
AS AT JUNE 30, 2007 AS AT DECEMBER 31, 2006
------------------- -----------------------
RMB MILLION RMB MILLION
Short-term borrowings (including current
portion of long-term borrowings) 27,733 35,763
Long-term borrowings 42,667 35,634
-------
Total borrowings 70,400 71,397
======= =======
Less: Cash and cash equivalents (71,771) (48,559)
------- -------
Net borrowings (1,371) 22,838
======= =======
Maturities of long-term borrowings of the Group, including those maturing within
one year, are as follows:
AS AT JUNE 30, 2007 AS AT DECEMBER 31, 2006
------------------- -----------------------
RMB MILLION RMB MILLION
To be repaid within one year 11,900 20,607
To be repaid within one to two years 12,372 11,797
To be repaid within two to five years 15,938 10,449
To be repaid after five years 14,357 13,388
------ ------
54,567 56,241
====== ======
49
Of the total borrowings of the Group as at June 30, 2007, approximately 31.6%
were fixed-rate loans and approximately 68.4% were floating-rate loans. Of the
borrowings as at June 30, 2007, approximately 74.1% were denominated in
Renminbi, approximately 25.5% were denominated in United States Dollar,
approximately 0.3% were denominated in Euro and approximately 0.1% were
denominated in Japanese Yen.
As at June 30, 2007, the amount of borrowings obtained by the Group from China
Petroleum Finance Company Limited ("CP Finance") was RMB27,044 million, the
amount of borrowings obtained from state-owned banks and other state-owned
non-banking financial institutions was RMB31,340 million and the amount of
borrowings obtained from other related parties was RMB5 million.
As at June 30, 2007, the amounts of short-term and long-term borrowings owed by
the Group to CP Finance were RMB321 million and RMB26,723 million, respectively.
As at June 30, 2007, borrowings of the Group included secured debts totaling
RMB315 million (RMB359 million as at December 31, 2006). These secured debts are
secured mostly over certain of the Group's assets and time deposits with
maturities over one year.
As at June 30, 2007, the gearing ratio of the Group (gearing ratio =
interest-bearing debts/(interest-bearing debts + total equity)) was 9.5% (10.4%
as at December 31, 2006).
CAPITAL EXPENDITURES
The table below sets out our capital expenditures by business segment for the
six months ended June 30, 2007 and June 30, 2006 respectively and the estimates
for the whole year of 2007 respectively. For the six months ended June 30, 2007,
capital expenditures of the Group increased 8.0% to RMB51,021 million from
RMB47,252 million for the six months ended June 30, 2006. The increase in
capital expenditures was primarily due to an increase in expenditures relating
to crude oil and natural gas exploration and exploitation, implementation of
safety and environmental protection and strategic adjustment. In addition, the
increases in commodity prices also resulted in increase in the capital
expenditures.
SIX MONTHS ENDED JUNE 30,
-----------------------------------------
2007 2006 ESTIMATES FOR 2007
------------------- ------------------- -------------------
RMB MILLION % RMB MILLION % RMB MILLION %
----------- ----- ----------- ----- ----------- -----
Exploration and Production 42,196* 82.7 32,933* 69.7 115,200* 62.0
Refining and Marketing 4,841 9.5 6,169 13.1 28,000 15.1
Chemicals and Marketing 1,163 2.3 3,938 8.3 16,000 8.6
Natural Gas and Pipeline 2,471 4.8 3,840 8.1 18,000 9.7
Other 350 0.7 372 0.8 8,500 4.6
------ ----- ------ ----- ------- -----
Total 51,021 100.0 47,252 100.0 185,700 100.0
====== ===== ====== ===== ======= =====
* If investments related to geological and geophysical exploration costs were
included, the capital expenditures and investments for the Exploration and
Production segment for the first half of 2006, the first half of 2007 and
the estimates for 2007 would be RMB37,253 million, RMB46,680 million and
RMB127,200 million, respectively.
50
Exploration and Production
The majority of the Group's capital expenditures were related to the Exploration
and Production segment. For the six months ended June 30, 2007, capital
expenditures in relation to the Exploration and Production segment amounted to
RMB42,196 million, including RMB8,542 million for exploration activities and
RMB25,726 million for development activities. For the six months ended June 30,
2006, capital expenditures in relation to this segment totaled RMB32,933
million, including RMB4,251 million for exploration activities and RMB26,061
million for development activities. The increase in capital expenditures was
primarily due to an increase in expenditures relating to oil and gas exploration
to secure oil and gas resources.
The Group anticipates that capital expenditures for the Exploration and
Production segment for the twelve months ending December 31, 2007 will amount to
RMB115,200 million, of which approximately RMB20,000 million will be used for
oil and gas exploration, and approximately RMB95,200 million will be used for
oil and gas exploitation. Exploration and exploitation activities will be mainly
carried out in basins including the Erdos, Junggar, Tarim, Songliao, Sichuan,
Bohai Bay and Chaidamu basins.
Refining and Marketing
Capital expenditures for the Group's Refining and Marketing segment for the six
months ended June 30, 2007 amounted to RMB4,841 million, of which RMB2,696
million was used in the construction and expansion of refining facilities and
RMB1,031 million in the expansion of the retail sales network for refined
products and storage infrastructure facilities for oil products. The total
capital expenditures of this segment for the six months ended June 30, 2006 were
RMB6,169 million. The decrease in these capital expenditures was primarily due
to certain projects which were under development in previous years being
completed in 2006. Construction works of projects scheduled for 2007 will
commence in the second half of the year.
The Group anticipates that capital expenditures for the Refining and Marketing
segment for the twelve months ending December 31, 2007 will amount to RMB28,000
million, of which approximately RMB20,000 million for construction and expansion
of refining facilities and approximately RMB8,000 million for investments in the
expansion of the sales network for refined products and upgrading of the product
quality.
Chemicals and Marketing
Capital expenditures for the Chemicals and Marketing segment for the six months
ended June 30, 2007 and 2006 amounted to RMB1,163 million and RMB3,938 million,
respectively. The decrease was primarily due to certain projects that were still
under development in the previous years including key projects such as the
ethylene rebuilding and expansion project of Lanzhou Petrochemical having
commenced production after their completion in 2006 while other projects such as
Fushun Petrochemical are still in their early stages of development.
The Group anticipates that capital expenditures for the Chemicals and Marketing
segment for the twelve months ending December 31, 2007 will amount to RMB16,000
million, which are expected to be used primarily for the construction of the
ethylene facilities in Dushanzi Petrochemical and Fushun Petrochemical.
Natural Gas and Pipeline
Capital expenditures in the Natural Gas and Pipeline segment for the six months
ended June 30, 2007 amounted to RMB2,471 million. The Group incurred RMB2,323
million of these expenditures on the construction of long distance pipelines.
For the six months ended June 30, 2006, capital expenditures in this segment was
RMB3,840 million. The decrease in capital expenditures incurred during the
reporting period was primarily due to certain key pipeline scheduled for
construction in 2007 will commence construction in the second half of the year.
51
The Group anticipates that capital expenditures for the Natural Gas and Pipeline
segment for the twelve months ending December 31, 2007 will amount to RMB18,000
million, which are expected to be used primarily for construction of key
pipelines and underground natural gas storage facilities.
Other
Capital expenditures for Other segment (including research and development
activities) for the six months ended June 30, 2007 and for the six months ended
June 30, 2006 were RMB350 million and RMB372 million, respectively.
The Group anticipates that capital expenditures for Other segment for the twelve
months ending December 31, 2007 will amount to approximately RMB8,500 million,
which are expected to be used primarily for research and development activities
and for implementation of ERP and other information systems.
MATERIAL INVESTMENT
The Group did not hold any material investment for the six months ended June 30,
2007.
MATERIAL ACQUISITIONS OR DISPOSALS
On March 18, 2007, the Company entered into a conditional equity transfer
agreement with CNPC to dispose its entire equity interest in China United Oil
Corporation ("China United Oil"), representing 70% of the entire registered
capital of China United Oil, a company incorporated under the laws of the PRC,
which is 70% owned by the Company and 30% owned by Sinochem Corporation, at a
consideration of approximately RMB1.01 billion.
Although the Company holds 70% of the equity interests in China United Oil,
China United Oil is equity accounted for by the Company as the Company does not
have unilateral control over China United Oil. Following the disposal, the
Company will cease to hold any equity interest in China United Oil.
POST-BALANCE SHEET DATE EVENT
At the extraordinary general meeting of the Company held on August 10, 2007, the
special resolution in relation to the initial public offering of A Shares of the
Company was passed, approving the allotment and issue of new A Shares by the
Company and authorising the Board and a special Board committee be fully
authorised to determine and deal with matters relating to the issue of the A
Shares.
The Company has decided to allot and issue of not more than 4 billion A Shares
(including the A Shares to be issued under the over-allotment option). The final
number of A Shares to be issued shall be determined by the Board or the special
Board committee pursuant to the authorisation granted under the shareholders'
resolution after taking into account the PRC's securities market conditions and
the Company's business development needs and shall be subject to approvals by
the China Securities Regulatory Commission and other relevant regulatory
authorities. The timetable for the A Share issue will also depend on the capital
market conditions, the progress in obtaining all the relevant approvals and such
other circumstances. Upon completion of the A Share issue, the Company will
apply for the listing of and permission to deal in the A Shares on the Shanghai
Stock Exchange. The net proceeds from the A Share issue, after deducting related
expenses, is proposed to be used mainly for the exploration and development of
the Company's domestic petroleum and gas resources; the construction of the
Company's large-scale refinery, petroleum and gas pipeline projects; and the
acquisition
52
of overseas petroleum and gas resources. Details of the A Share issue were set
out in the circular to the shareholders of the Company dated June 25, 2007.
FOREIGN EXCHANGE RATE RISK
From July 21, 2005, the PRC government reformed the Renminbi exchange rate
regime and implemented a regulated floating exchange rate regime based on market
supply and demand with reference to a basket of currencies. However, Renminbi
capital items are still subject to foreign exchange control. The exchange rates
of Renminbi are affected by domestic and international economic developments and
political changes, and supply and demand for currencies. Future exchange rates
of Renminbi against other currencies could vary significantly from the current
exchange rates. As Renminbi is the functional currency of the Company and most
of its consolidated subsidiaries, the fluctuation of the exchange rate of
Renminbi may have positive or negative impacts on the results of operations of
the Group. An appreciation of Renminbi against United States Dollar may decrease
the Group's turnover, but the cost for acquiring imported materials and
equipment may be reduced. A devaluation of Renminbi against United States Dollar
may not have a negative impact on the Group's turnover but may increase the cost
for acquiring imported materials and equipment as well as the debt obligations
denominated in foreign currencies of the Group.
COMMODITY PRICE RISK
The Group is engaged in a wide range of petroleum-related activities. The oil
and gas markets are affected by global and regional demands and supplies. Prices
of onshore crude oil are determined with reference to the prices of crude oil on
the international markets. A decline in the prices of crude oil and refined
products could adversely affect the Group's financial position. The Group
historically has not used commodity derivative instruments to hedge against
potential price fluctuations of crude oil and refined products. Therefore, the
Group is exposed to general price fluctuations of oil and gas commodities in
2007 and thereafter.
INDUSTRY RISK
Like other oil and gas companies in China, the Group's operating activities are
subject to regulation and control by the PRC government in many aspects. This
regulation and control, such as by the granting of exploration and production
licences, the imposition of industry-specific taxes and levies and the
implementation of environmental and safety standards etc., is expected to have
an impact on the Group's operating activities. As a result, the Group may be
subject to fairly significant restrictions when implementing its business
strategy, developing and expanding its business or maximising its profitability.
Any future changes in the PRC governmental policies on the oil and gas industry
may also affect the Group's business operations.
EMPLOYEES AND EMPLOYEE COMPENSATION
Number of employees
As at June 30, 2007 and June 30, 2006, the Group had 463,670 and 438,127
employees, respectively (excluding temporary staff). The table below sets out
the number of employees by major business segments as at June 30, 2007:
53
NUMBER OF EMPLOYEES PERCENTAGE OF TOTAL (%)
------------------- -----------------------
Exploration and Production 259,912 56.1
Refining and Marketing 121,851 26.3
Chemicals and Marketing 62,057 13.4
Natural Gas and Pipeline 15,416 3.3
Other* 4,434 0.9
------- -----
Total 463,670 100.0
======= =====
* "Other" includes staff of the Company's headquarters, business segments,
Exploration & Development Research Institute, Planning & Engineering
Institute, Petrochemical Research Institute and other units.
Employee Compensation
The total employee compensation payable by the Group for the six months ended
June 30, 2007 was RMB13,472 million, being the total salaries of employees
during the period. Compensation of employees is determined according to industry
practice and actual conditions of the Group, and is based on the principles of
attracting and retaining high-calibre personnel, and motivating all staff for
the realisation of best results.
The Company's senior management remuneration system links senior management
financial interests (including those of executive directors and supervisors)
with the Group's results of operations and the market performance of its shares.
All members of the senior management have entered into performance contracts
with the Company. Under this system, the senior management members' compensation
has three components, namely, fixed salaries, performance bonuses and stock
appreciation rights. The variable components in their compensation account for
approximately 70% to 75% of the senior management officers' total potential
compensation, including approximately 0% to 25% forming the performance bonus
component and approximately 50% to 70% forming the stock appreciation rights
component. Variable compensation rewards are linked to the attainment of
specific performance targets, such as net profit, return on capital and cost
reduction targets. The chart below sets
54
forth the components of the total potential compensation for key officers:
STOCK
APPRECIATION PERFORMANCE
BASIC SALARY (%) RIGHTS (%) BONUS (%)
---------------- ------------ -----------
Chairman 30 70 0
President 25 60 15
Vice Presidents 25 60 15
DepartmentGeneral Managers 25 50 25
Details of the directors' and supervisors' emoluments for the six months ended
June 30, 2007 and June 30, 2006 were as follows:
FOR THE SIX MONTHS
ENDED JUNE 30
------------------
2007 2006
------- -------
RMB'000 RMB'000
Subsidies for directors and supervisors 458 816
Salaries, allowances and other benefits 1,450 985
Contributions to retirement benefit scheme 72 28
----- -----
1,980 1,829
===== =====
The number of directors and supervisors whose emoluments fall within the
following band (including directors and supervisors whose term expired during
the reporting period):
AS AT JUNE 30, 2007 AS AT JUNE 30, 2006
------------------- -------------------
NUMBER NUMBER
--- ---
RMB Nil-RMB1,000,000 20 20
=== ===
55
Upon exercise of their stock options, members of the senior management will not
receive any shares in the Company, but will, by way of stock appreciation
rights, receive a monetary sum which is calculated on the basis of the share
price of the H shares listed on The Stock Exchange of Hong Kong Limited
("HKSE").
Training Programmes
The training programmes of the Company for 2007 have been geared towards
achieving the development strategy and operating objectives of the Company to
improve the calibre of its corporate management, technical and marketing teams.
The programmes are focused on reinforcing corporate management ability,
technical innovation ability and operational skills. The training system has
been further improved, with the training mechanism upgraded, resources optimised
and methods improved, in order that a scientific, disciplined, orderly and
efficient system will be gradually established with a view to continuously
improving training quality, upgrading of the overall manpower quality and
constant supply of talents required for the continuous, stable and co-ordinated
rapid development of the Company.
CONTINGENT LIABILITIES
Information on the Group's contingent liabilities as at June 30, 2007 is as
follows:
Bank and other guarantees
At June 30, 2007, due to certain guarantees provided by the Group, the Group had
contingent liabilities to CP Finance, a subsidiary of CNPC. It is anticipated
that no material liabilities will arise therefrom.
JUNE 30, 2007 DECEMBER 31, 2006
------------- -----------------
RMB MILLION RMB MILLION
Guarantee provided to CP Finance in
respect of borrowings of associates 162 162
Guarantee provided to a State-owned bank in
respect of borrowings of third parties -- 41
--- ---
162 203
=== ===
Environmental liabilities
CNPC and the Group have operated in China for many years. China has adopted
extensive environmental laws and regulations that affect the operation of the
oil and gas industry. The outcome of environmental liabilities under proposed or
future environmental legislation cannot reasonably be estimated at present, and
could be material. Under existing legislation, however, the management of the
Group believes that there are no probable environmental liabilities, except for
the amounts which have already been reflected in the financial statements, that
will have a material adverse effect on the financial position of the Group.
56
Legal contingencies
The Group is the named defendant in certain insignificant lawsuits as well as
the named party in other proceedings arising in the ordinary course of business.
While the outcome of such contingencies, lawsuits or other proceedings cannot be
determined at present, the management of the Group believes that any resulting
liabilities will not have a material adverse effect on the financial position of
the Group.
Leasing of roads, land and buildings
According to the Restructuring Agreement entered into between the Company and
CNPC in 1999 upon the formation of the Company:
- CNPC will use its best endeavours to obtain formal land use right
certificates to replace the entitlement certificates in relation to the
28,649 parcels of land which were leased or transferred to the Company from
CNPC, within one year from August, September and October 1999 when the
relevant entitlement certificates were issued;
- CNPC will complete, within one year from November 5, 1999, the necessary
governmental procedures for the requisition of collective-owned land on
which 116 service stations owned by the Company are located; and
- CNPC will obtain individual building ownership certificates in the name of
the Company for all of the 57,482 buildings transferred to the Company by
CNPC, before November 5, 2000.
As at June 30, 2007, CNPC had obtained formal land use right certificates in
relation to 27,494 out of the above-mentioned 28,649 parcels of land and some
building ownership certificates for the above-mentioned buildings, but has not
fully completed the necessary governmental procedures for the above-mentioned
service stations located on collectively owned land. The management of the Group
confirmed that the use of and the conduct of the relevant activities at the
above-mentioned parcels of land, service stations and buildings are not affected
by the fact that the relevant land use right certificates or individual building
ownership certificates have not been obtained or the fact that the relevant
governmental procedures have not been completed. The management of the Group is
of the opinion that the outcome of the above events will not have a material
adverse effect on the operating results or the financial position of the Group.
Group insurance
Except for limited insurance coverage for vehicles and certain assets subject to
significant operating risks, the Group does not carry any other insurance for
property, facilities or equipment with respect to its business operations. In
addition, the Group does not carry any third-party liability insurance against
claims relating to personal injury, property and environmental damages or
business interruption insurance since such insurance coverage is not customary
in China. While the effect of under-insurance on future incidents cannot be
reasonably assessed at present, the management of the Group believes that it may
have a material impact on the operating results but will not have a material
adverse effect on the financial position of the Group.
57
(photo)
58
BUSINESS OPERATING REVIEW AND PROSPECTS
MARKET REVIEW
Crude Oil Market Review
In the first half of 2007, oil prices on the international market dropped at the
beginning of the year but picked up in the subsequent months. At the beginning
of the year, international oil prices dropped sharply as a result of a decrease
in the demand for heating oil due to the warmer weather in the northern
hemisphere and an increase in the oil stocks in the United States. Subsequently,
international oil prices rose in a volatile manner and reached a fairly high
level when there were frequent refinery accidents, a reduction in oil production
by OPEC member states and political instability of oil-producing countries. In
the first half of the year, the average prices for WTI, Brent and Minas crude
oil were US$61.53, US$63.21 and US$63.67 per barrel respectively, representing a
decrease of 7.9%, 3.7% and 3.3% compared to the average prices during the same
period in the previous year respectively. Affected by the international oil
prices, the average realised price for domestic crude oil in the first half of
2007 was lower than that in the first half of 2006.
Domestic crude oil imports continued to increase in the first half of 2007. The
net amount of imports was 79.72 million tons, representing an increase of 13.4%
as compared to that in the first half of the previous year. Domestic crude oil
output and the amount of crude oil processed reached 93.02 million tons and 150
million tons respectively.
Refined Products Market Review
In the first half of 2007, international oil prices fell at the beginning of the
year but then rose with fairly significant volatility. Domestic refined product
prices, however, were not fully in line with the prices in the international
market. Therefore, refineries incurred losses in processing since June 2007.
There was a drastic reduction in supply of refined products by local refineries
as they were totally or partly out of operation as a result of running at a
loss. Overall, the demand and supply of refined products were in a balanced
position in the first half of 2007. In the first quarter, the supply exceeded
the demand due to the low season coupled with the lower international oil
prices. In the second quarter, the supply became tighter due to the high season
coupled with the higher oil prices and drop of supply from local refineries.
Under these circumstances, it was rather difficult to maintain stable supply on
the market. Nominal consumption of refined products was 89.42 million tons in
the first half of the year, representing a 4.2% increase over the amount in the
same period in previous year.
Chemical Products Market Review
The PRC economy experienced vigorous growth in the first half of 2007. While
there was a substantial rise in the production capacity for chemical products,
the demand also grew quite strongly and the domestic supply and demand were
basically in balance. When crude oil prices continued to move upwards, the
market prices of chemical products also remained high.
Natural Gas Market Review
At the end of 2005, the PRC government introduced a new pricing regulation for
natural gas and increased the ex-factory price of natural gas. To certain
extent, this measure tempered the rapid growth in the demand for natural gas. In
the first half of 2007, domestic supply of natural gas did not meet demand.
BUSINESS REVIEW
In the first half of 2007, despite the continuing strategic adjustment of the
crude oil output in the Daqing Oilfield and exceptional natural disasters
including snowstorms and windstorms occurred in the Northeastern China and the
Bohai Bay regions, production and operations of the Group proceeded steadily. By
strategically deploying resources and organising workstreams, significant
milestones were achieved in respect of oil and natural
59
gas exploration: the discovery of the Jidong Nanpu Oilfield in Jidong shallow
water areas of Bohai Bay which contains oil reserves of up to one billion tons.
The relevant PRC government authorities assessed the reserves at the Jidong
Nanpu Oilfield in August 2007, confirming the proved reserves of original oil in
place of 445 million tons and the three-level geological reserves of oil and gas
(or oil and gas equivalent) of up to 1.18 billion tons; important achievement
was also made in Erdos Basin, Songliao Basin, Gunggar Basin and Sichuan Basin,
the growth in the oil and natural gas reserves of the Group remained
satisfactory, providing more stable supply of resources required for
strengthening the development bases of the Company. The Group made fairly fast
progress in its refining and marketing business, showing continuous optimisation
in the restructuring of refinery operations, steady growth in production,
improvements in major technical and economic indicators for petrochemicals
production and further expansion of the marketing and sales networks for refined
products. Meanwhile, the construction of certain key pipeline of the Group has
commenced and is proceeding in an orderly manner, enhancing the assurance of
steady oil and gas supply. In adherence to the principle of gaining mutual
benefits and achieving a win-win situation with business partners, the Group
actively participated in international oil cooperations, resulting in the
expansion of its business in terms of scope and scale.
For the six months ended June 30, 2007, total crude oil and natural gas output
of the Group was 552.7 million barrels of oil equivalent, including 419.7
million barrels of crude oil and 798.0 billion cubic feet of marketable natural
gas, representing an average daily output of 2.32 million barrels of crude oil
and 4,409 million cubic feet of marketable natural gas. For the six months ended
June 30, 2007, a total of 425.5 million barrels of crude oil and 787.7 billion
cubic feet of natural gas were sold. The Group sold approximately 84.1% of the
crude oil to its refineries. In the first half of 2007, the lifting cost for the
oil and gas operations of the Group was US$7.10 per barrel, up from US$5.91 per
barrel in the first half of 2006.
For the six months ended June 30, 2007, the Group's refineries processed 407.7
million barrels of crude oil, representing an average of 2.25 million barrels
per day. Approximately 80.0% of the crude oil processed in the Group's
refineries was supplied by the Exploration and Production segment. The Group
produced approximately 35.55 million tons of gasoline, diesel and kerosene and
sold approximately 40.93 million tons of these products. The Group actively
expanded its sales and distribution networks, in particular the retail sales
network, by capitalising on the synergy achieved from the integration of
refining and marketing. As at June 30, 2007, there were 18,630 service stations
either owned, controlled or franchised by the Group or owned by CNPC but to
which the Group provided supervisory support. The cash processing cost of the
Group's refineries decreased from RMB151 per ton during the first half of 2006
to RMB136 per ton during the first half of 2007.
For the six months ended June 30, 2007, the Group produced 1.305 million tons of
ethylene, 1.997 million tons of synthetic resin, 0.701 million tons of synthetic
fiber raw materials and polymers, 0.158 million tons of synthetic rubber and
1.897 million tons of urea.
The Natural Gas and Pipeline segment is a business segment of the Group that has
been given priority in expansion. For the six months ended June 30, 2007, the
Group sold 711.6 billion cubic feet of marketable natural gas through the
Natural Gas and Pipeline segment.
THE SECOND HALF OF 2007 AND BEYOND
During the second half of 2007, the Company will continue to adopt solid
measures to implement various working plans formulated at the beginning of the
year. In due observance of the working guidelines, which is "steady, balanced,
efficient, regulated and coordinated", the Company will organise production and
operation in a scientific manner, taking active steps to change the economic
growth model and promote technological
60
and management innovations. It will also strive to enhance harmony throughout
the Company and push forward its effective and rapid development.
In the Exploration and Production area, the Company will keep on increasing
exploration efforts and capitalise on exploration results to further reinforce
and enhance the resource base. As regards development in oil and gas
exploitation, the Company has extensively initiated works targeted for the
secondary recovery of old oilfields that have been exploited for relatively
longer years and which have high water content, with an aim to enhance the
recovery rate. Through the deployment of comprehensive measures, the Company
endeavours to raise the recovery rate by around 10%. We also endeavour to
maintain the Company's domestic oil and gas output, which currently represents
approximately 60% and above 75% of the total crude oil and natural gas output
respectively in China, in the foreseeable future, thus further reinforcing the
leading position of the Company among the oil and gas suppliers in the country.
In the Refining and Marketing area, the Company will continue to optimise the
structure of its refining operations and will organise refinery production in a
scientific manner with a view to raise operation efficiency. In the forthcoming
years, construction of certain large refining facilities will gradually be
completed and commence operations, that enables the Company to maintain its
domestic market share in crude oil processing as well as output and sales volume
of refined products, which is currently above 40%, and to gradually increase its
ethylene output to one-third of the total ethylene output in China.
In the Natural Gas and Pipeline area, the Company will continue to maintain the
continuous fast growth in the sales of natural gas. In the near future, the
Company plans to construct the Second West-East Gas Pipeline, which connects the
Central Asia Gas Pipeline, thereby creating another channel for the West-East
Gas Pipeline. We will also construct certain key oil and gas pipelines including
the Northeastern China natural gas pipeline network, Lanzhou-Zhengzhou-Changsha
refined oil pipeline and Jinzhou-Zhengzhou refined oil pipeline. With these
pipeline projects, the Company will further enhance its oil and gas supply
capacity and will also have an even stronger basis for future development.
In terms of international businesses, the Company will continue to expedite the
development and strive to enhance its scale and competitiveness. It will
continue to organise the operation of existing projects and make greater efforts
in developing new projects. It will tap on new exploration and exploitation
opportunities and will actively seek opportunities of restructuring, merger and
acquisition and formation of strategic alliances. Meanwhile, the Company plans
to develop larger and stronger international trade operations and make efforts
to raise its level of internationalisation and the quality of its international
operations.
Looking ahead, it is expected that the world economy will maintain stable growth
and the Chinese economy will maintain rapid growth. The persistently high and
fast growing demand for oil and gas will provide great opportunities for the
business development of the Company. Implementation of the Chinese Government's
strategic initiatives to promote the development of the Western China and to
re-invigorate old industrial bases in particular those in the Northeastern
China, together with the stepping up of the pace in building a market-oriented
pricing mechanism for oil and gas, have provided more favourable government
policy conditions and market environment for the development of the Company. The
further deepening of the economic globalisation process facilitates the Company
in taking part in the worldwide market and its sharing of global oil and gas
resources. Adhering to the corporate objective of "contributing energy and
creating harmony", the Company will endeavour to operate steadily, healthily and
with integrity at all times and will continue to enhance its corporate value,
actively fulfill its economic, environmental and social responsibilities and
seek returns for its shareholders, the society and its employees with
satisfactory operating results.
61
INTERIM DIVIDENDS AND CLOSURE OF REGISTER OF MEMBERS
At the general meeting held on May 16, 2007, the Board was authorised by
shareholders of the Company to decide matters relating to the interim dividends
for year 2007. The Board has decided to pay interim dividends of RMB0.205690 per
share (inclusive of applicable taxes) from 45% of the net profit for the six
months ended June 30, 2007 to shareholders whose names appear on the register of
members of the Company at the close of business on September 13, 2007. The
register of members will be closed from September 7, 2007 to September 13, 2007
(both days inclusive) during which period no transfer of shares will be
registered. In order to qualify for the interim dividends, all transfer
documents must be lodged, together with the relevant share certificates, at the
Computershare Hong Kong Investor Services Limited no later than 4:30 p.m. on
September 6, 2007.
In accordance with Article 149 of the Company's Articles of Association,
dividends payable to the Company's shareholders shall be declared in Renminbi.
Dividends payable to the holders of state-owned shares shall be paid in Renminbi
while dividends payable to the holders of H shares shall be paid in Hong Kong
Dollars. The amount of Hong Kong Dollars payable shall be calculated at the rate
RMB0.9718 equals to HK$1.00 which was the average of the closing exchange rates
for Renminbi to Hong Kong Dollar as announced by the People's Bank of China for
the week prior to the declaration of the dividends by the Board. Therefore, the
interim dividends per H share payable will be HK$0.211659.
Interim dividends will be paid on or around September 28, 2007.
SHARE CAPITAL STRUCTURE
The share capital of the Company in issue as fully paid or credited as fully
paid as at June 30, 2007 was 179,020,977,818 shares, with a par value of RMB1.00
each. As at June 30, 2007, the share capital structure of the Company was as
follows:
PERCENTAGE OF
THE TOTAL NUMBER
NUMBER OF SHARES OF SHARES IN ISSUE
AS AT AS AT
SHARES JUNE 30, 2007 JUNE 30, 2007 (%)
------ ---------------- ------------------
State-owned shares 157,922,077,818 88.21
Foreign-invested shares (H shares and ADSs) 21,098,900,000 11.79
--------------- ------
Total 179,020,977,818 100.00
=============== ======
62
REPURCHASE, SALE OR REDEMPTION OF SECURITIES
The Company or any of its subsidiaries did not sell any securities of the
Company or repurchase or redeem any of the securities of the Company during the
six months ended June 30, 2007.
QUALIFIED ACCOUNTANT
In an announcement dated October 18, 2004, the Company announced that it had not
been able to find a suitable accountant with professional accounting
qualifications recognised to assume the position of qualified accountant as
required under Rule 3.24 of the Listing Rules by September 30, 2004. The Company
is still in the process of identifying suitable candidates with professional
accounting qualifications to assist the Chief Financial Officer to oversee the
compliance by the Company of the financial reporting and other related
accounting matters. However, despite numerous attempts to find such a candidate,
given the importance of the role and the function of the qualified accountant,
the Company has still not been able to find a suitable candidate that meets all
the requirements in Rule 3.24 of the Listing Rules. The Company is trying its
best to identify a candidate with the appropriate qualifications, experience and
understanding of the oil and gas industry to act as the joint qualified
accountant to assist the Chief Financial Officer of the Company to carry out his
duties. The Company will make an application for a 3-year waiver to the HKSE
when it has identified the joint qualified accountant.
OTHER DISCLOSURES
Apart from the above, there have been no material changes from the information
disclosed in the Annual Report of the Group for the year ended December 31, 2006
regarding other matters specified in paragraph 46(3) of Appendix 16 of the
Listing Rules.
63
SHAREHOLDINGS OF MAJOR SHAREHOLDERS
As at June 30, 2007, the register of interests in shares and short positions
kept by the Company under section 336 of the Securities and Futures Ordinance
(Cap. 571 of the Laws of Hong Kong) (the "SFO") showed that the persons in the
following table and notes held interests or short positions in the Company's
shares:
PERCENTAGE (%)
OF THE PERCENTAGE (%)
TOTAL NUMBER OF THE
OF THAT TOTAL SHARE
NAME OF SHAREHOLDER TYPE OF SHARES NO. OF SHARES CLASS IN ISSUE CAPITAL
------------------- ------------------ --------------- -------------- --------------
CNPC State-owned shares 157,922,077,818 100.00 88.21
Warren E. Buffett(1) H shares 2,347,761,000 11.13 1.311
JPMorgan Chase & Co.(2) H shares 1,082,632,321(L) 5.13(L) 0.605
716,269,659(P)(3) 3.39(P) 0.400
Notes:
(1) By virtue of Warren E. Buffett's 35.4% interest in Berkshire Hathaway Inc.,
Berkshire Hathaway Inc.'s 100% interest in OBH Inc., OBH Inc.'s 100%
interest in National Indemnity Co. and 100% interest in GEICO Corporation,
and GEICO Corporation's 100% interest in Government Employees Inc. Company,
each of Warren E. Buffett, Berkshire Hathaway Inc. and OBH Inc. is deemed
to be interested in 2,279,151,000 H shares held by National Indemnity Co.
and 68,610,000 H shares held by Government Employees Inc. Company,
totalling 2,347,761,000 H shares.
(2) JPMorgan Chase & Co. through its various controlled corporations is deemed
to be interested in an aggregate of 1,082,632,321 H shares of the Company.
Of these 1,082,632,321 H shares, 720,409,659 H Shares are directly held by
JPMorgan Chase Bank, N.A., JPMorgan Chase & Co. is deemed to be interested
in these 720,409,659 H shares by virtue of its 100% interest in JPMorgan
Chase Bank, N.A.; 3,698,000 H shares are directly held by J.P. Morgan
Securities Ltd., by virtue of J.P. Morgan Chase International Holdings
Limited's 100% interest in J.P. Morgan Securities Ltd., J.P. Morgan Chase
(UK) Holdings Limited's 100% interest in J.P. Morgan Chase International
Holdings Limited, J.P. Morgan Capital Holdings Limited's 100% interest in
J.P. Morgan Chase (UK) Holdings Limited and J.P. Morgan International
Finance Limited's 100% interest in J.P. Morgan Capital Holdings Limited,
J.P. Morgan Chase International Holdings Limited, J.P. Morgan Chase (UK)
Holdings Limited, J.P. Morgan Capital Holdings Limited and J.P. Morgan
International Finance Limited are deemed to be interested in these
3,698,000 H shares; 188,686,960 H shares are directly held by J.P. Morgan
Whitefriars Inc., J.P. Morgan Overseas Capital Corporation is deemed to be
interested in these 188,686,960 H shares by virtue of its 100% interest in
J.P. Morgan Whitefriars Inc.; 15,609,702 H shares are directly held by J.P.
Morgan Investment Management Inc., JPMorgan Asset Management Holdings Inc.
is deemed to be interested in these 15,609,702 H shares by virtue of its
100% interest in J.P. Morgan
64
Investment Management Inc.; 2,426,000 H shares are directly held by JF
International Management Inc., JPMorgan Asset Management (Asia) Inc. is
deemed to be interested in these 2,426,000 H shares by virtue of its 100%
interest in JF International Management Inc.; 151,344,000 H shares are
directly held by JF Asset Management Limited, JPMorgan Asset Management
(Asia) Inc. is deemed to be interested in these 151,344,000 H shares by
virtue of its 100% interest in JF Asset Management Limited; 458,000 H
shares are directly held by J.P. Morgan International Bank Limited, J.P.
Morgan Overseas Capital Corporation is deemed to be interested in these
458,000 H shares by virtue of its 100% interest in J.P. Morgan
International Bank Limited.
Of these 1,082,632,321 H shares, 192,842,960 H shares are indirectly held
by J.P. Morgan International Finance Limited, by virtue of Bank One
International Holdings Corporation's 100% interest in J.P. Morgan
International Finance Limited, J. P. Morgan International Inc.'s 100%
interest in Bank One International Holdings Corporation, JPMorgan Chase
Bank, N.A.'s 100% interest in J. P. Morgan International Inc, JPMorgan
Chase & Co.'s 100% interest in JPMorgan Chase Bank, N.A., Bank One
International Holdings Corporation, J. P. Morgan International Inc.,
JPMorgan Chase Bank, N.A. and JPMorgan Chase & Co. are also deemed to be
interested in these 192,842,460 H shares; 189,144,960 H shares are also
indirectly held by J. P. Morgan Overseas Capital Corporation, J. P. Morgan
International Finance Limited is also deemed to be interested in these
shares by virtue of its 100% interest in J. P. Morgan Overseas Capital
Corporation; 169,379,702 H shares are also indirectly held by JPMorgan
Asset Management Holdings Inc., JPMorgan Chase & Co. is also deemed to be
interested in these shares by virtue of its 100% interest in JPMorgan Asset
Management Holdings Inc.; and 153,770,000 H shares are also indirectly held
by JPMorgan Asset Management (Asia) Inc., JPMorgan Asset Management
Holdings Inc. is also deemed to be interested in these shares by virtue of
its 100% interest in JPMorgan Asset Management (Asia) Inc.
(3) Comprising 716,269,659 H shares in the lending pool as defined in the SFO.
The term "lending pool" is defined as (i) shares that the approved lending
agent holds as agent for a third party which he is authorised to lend and
other shares that can be lent according to the requirements of the
Securities Borrowing and Lending Rules; and (ii) shares that have been lent
by the approved lending agent, and only if the right of the approved
lending agent to require the return of the shares has not yet been
extinguished.
As at June 30, 2007, save as disclosed above, no person (other than the
Directors, senior management or the Supervisors of the Company) had recorded an
interest in the register of interests in shares and short positions kept
pursuant to section 336 of the SFO.
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INTERESTS OF DIRECTORS AND SUPERVISORS IN THE SHARE CAPITAL OF THE COMPANY
As at June 30, 2007, none of the directors or supervisors of the Company had any
interest and short positions in any shares, underlying shares or debentures of
the Company or any associated corporation within the meaning of Part XV of the
SFO required to be recorded in the register mentioned under Section 352 of the
SFO or as otherwise notifiable to the Company and the HKSE by the directors and
supervisors pursuant to the Model Code for Securities Transactions by Directors
of Listed Issuers.
As at June 30, 2007, the Company has not granted any option to purchase
securities or debentures in the share capital of the Company to any directors or
supervisors or any of his spouse or child under the age of 18.
COMPLIANCE WITH THE MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS OF
LISTED ISSUERS
The Company has adopted the Model Code for Securities Transactions for Directors
of Listed Issuers contained in Appendix 10 of the Listing Rules (the 'Model
Code') to regulate trading of shares in the Company by the Directors. The
Directors and Supervisors have confirmed to the Company that each of them has
complied with the requirements set out in the Model Code.
COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES
The Company has complied with the Code on Corporate Governance Practices
contained in Appendix 14 to the Listing Rules throughout the six months ended
June 30, 2007, except that since May 20, 2007, the roles of the chairman and the
president were held by the same person. Following the retirement of Mr. Chen
Geng, Mr. Jiang Jiemin, who was the president and vice chairman of the Company,
has since May 20, 2007 been appointed as the chairman of the Board concurrently
with his role as the president of the Company. With his extensive experience in
China's oil and gas industry and substantial knowledge of the operations and
management of the Company, the Board believes that Mr. Jiang will continue to
provide strong leadership to the Board and facilitate the Company to implement
its plans and strategies smoothly and effectively. The Board believes that such
change in the management structure will not affect the operations and business
development and corporate governance of the Company. In view of the importance
of the role as the president, should there be a candidate with the suitable
credentials, the Board will consider appointing a new president to comply with
the relevant requirement under the Code on Corporate Governance Practices.
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AUDIT COMMITTEE
The members of the audit committee of the Company formed pursuant to the Listing
Rules include Mr. Franco Bernabe, Mr. Chee-Chen Tung, Mr. Liu Hongru and Mr.
Gong Huazhang. The main responsibilities of the audit committee are the review
and monitoring of the form of financial submissions and the internal control
mechanism of the Group and giving advice to the Board of Directors. The audit
committee of the Company has reviewed and confirmed the interim results
announcement and report for the six months ended June 30, 2007.
DIRECTORS OF THE COMPANY
As at the date of this report, the Board comprises Mr. Jiang Jiemin as the
Chairman; Mr. Duan Wende as executive director; Mr. Zheng Hu, Mr. Zhou Jiping,
Mr. Wang Yilin, Mr. Zeng Yukang, Mr. Gong Huazhang and Mr. Jiang Fan as
non-executive directors; and Mr. Chee-Chen Tung, Mr. Liu Hongru and Mr. Franco
Bernabe as independent non-executive directors.
By Order of the Board
PetroChina Company Limited
Jiang Jiemin
Chairman
Beijing, PRC
August 23, 2007
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PetroChina Company Limited
Dated: September 07, 2007 By: /s/ Li Huaiqi
--------------------
Name: Li Huaiqi
Title: Company Secretary